WASHINGTON—President Obama on Thursday canceled a joint military exercise with Egypt that had been scheduled for next month, but stopped short of cutting off $1.5 billion in US aid to the country, in his first response to Wednesday’s bloody military crackdown.

Obama, speaking during his vacation on Martha’s Vineyard after 525 people were killed in clashes, did not use the word coup to define the Egyptian military takeover, which would trigger an end to the aid under US law. The closest Obama came to threatening financial penalties was the warning of “further steps we may take as necessary.”

Yet the president used some of his strongest language against the military crackdown, calling on Egyptian leaders to end the state of emergency and to begin the process of forming a more inclusive government. At the same time, he underscored what he defined as the complexity of the situation, painting the path to democracy is long, difficult, and uncertain.

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“The United States strongly condemns the steps that have been taken by Egypt’s interim government and security forces,” he said.

“Violence will only feed the cycle of polarization that isolates Egyptians from one another and the world,” he added. “The Egyptian people deserve better than what we’ve seen over the last several days.”

The delicate mix of rhetoric and action underscores the administration’s difficulty in responding to the quickly shifting atmosphere in a country that had long been an outpost of stability and key US ally within a volatile and hostile region.

Just two weeks ago, Secretary of State John F. Kerry drew criticism for a statement he made that appeared to amplify the legitimacy of Egypt’s military leaders, portraying them as agents of popular will.

“The military did not take over, to the best of our judgment, so far, to run the country. There’s a civilian government,” Kerry said in Pakistan. “In effect, they were restoring democracy.”

An anonymous aide told the Wall Street Journal that Kerry “did not stick to the script.” While not explicitly backtracking, Kerry later issued a milder statement, calling on all parties to work toward a peaceful and democratic solution.

Since then, the Egyptian military’s rule has grown increasingly violent. Hundreds of people were killed, and thousands injured on Wednesday following clashes with demonstrators. The death toll has continued to climb, dramatically threatening stability in the Middle East in addition to inflicting harm to the Egyptian people.

Military leaders seized control of the government six weeks ago, ousting President Mohamed Morsi, of the Muslim Brotherhood Party, who had been democratically elected following an uprising against Hosni Mubarak two years ago.

Tarek Masoud, a professor at Harvard’s Kennedy School who specializes in Middle Eastern politics, said he does not know whether Obama’s response is the right one, but it may be the only option, given the delicacy and uncertainty of the situation.

“He’s trying to thread a very difficult needle,” Masoud said. “He wants to show the appropriate level of criticism for the violence that the Egyptian government has meted out on the protesters, but at the same time, does not want to foreclose the possibility of the Egyptian military stepping back and engaging in a kind of reconciliation process that will allow the Egyptian-American relationship to continue.”

Obama said Morsi had been elected democratically but had not been inclusive in his leadership.

“We respect the complexity of the situation,” Obama said. “While we do not believe that force is the way to resolve political differences…there remained a chance for reconciliation.”

Instead, Obama said, “We’ve seen a more dangerous path taken.”

As the military’s rule has grown more severe, there has been increased pressure on Obama to mount a more aggressive response. There have also been further calls since Wednesday to consider cutting off or curtailing the $1.5 billion annual US aid to the country.

Obama also used Wednesday’s speech to try to quell criticism from within Egypt that the United States has not lived up to its promise to defend liberty, or that it has played a role in fomenting violence. He said the United States would support Egypt, but that it would not take sides and that it was up to the Egyptian people to forge their own path.

“I know it’s tempting inside of Egypt to blame the United States or the West or some outside actor,” Obama said. “We want Egypt to succeed. We want a peaceful democratic prosperous Egypt. That’s our interest.”

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