Egypt's military high council has promised to lift the country's 30-year state of emergency when the "current situation has ended".
The televised statement came as crowds gathered in cities across Egypt for fresh protests.
Protesters are angry at President Hosni Mubarak's announcement on Thursday that he will not step down.
Mr Mubarak has left Cairo and is in the Red Sea resort of Sharm el-Sheikh where he has a residence, officials say.
"Mubarak is in Sharm el-Sheikh," Mohammed Abdellah, spokesman for the ruling National Democratic Party (NDP), told the BBC.
An unnamed US official described the president's departure as a "positive first step".
Later, NDP Secretary General Hossam Badrawi, who was appointed last week in a shake-up aimed at placating the protesters, said he would announce his resignation within hours.
On Thursday, Mr Badrawi said it was time for Mr Mubarak to "step aside".
In Cairo, thousands of people have gathered outside the presidential palace, in Tahrir Square and at state TV.
Meanwhile, there were reports of clashes in northern Sinai as a police station was attacked and several people were injured.
The army said in what it called "Communique No 2" that it "confirms the lifting of the state of emergency as soon as the current circumstances end".
It endorsed the transfer of President Mubarak's powers to his vice-president, General Omar Suleiman, and guaranteed a free and fair presidential election, constitutional changes and "protection of the nation".
The army also urged "the need to resume orderly work in the government installations and a return to normal life, preserve the interests and property of our great people".
Disappointment for protesters
The lifting of Egypt's state of emergency has been a key demand of the protesters.
However, the BBC's Yolande Knell in Cairo said the army statement, which suggests it throws its weight behind President Mubarak's decision not to resign, will be a huge disappointment for demonstrators.
Meanwhile, the BBC's Jon Leyne in Cairo says Friday's mass protests could bring demonstrators into direct conflict with the army.
It is the most dangerous moment so far in more than two weeks of protests, he adds.
Mass protest marches got under way following Friday prayers at midday (1000 GMT).
There was a stand-off outside the offices of state TV, with troops sealing off the building and keeping back a large crowd.
Demonstrators blocked employees from entering and leaving, accusing them of negative reporting about the protests.
Leading Egyptian opposition figure Mohamed ElBaradei tweeted: "Entire nation is on the streets. Only way out is for regime to go. People power can't be crushed. We shall prevail. Still hope army can join."
The BBC's Paul Adams in the northern port city of Alexandria says there are thousands of protesters on the street, although the scale of the demonstrations is smaller than in Cairo.
He told the BBC's Newshour programme that there are checkpoints on the way into the city but the army is keeping only a light presence.
The protests have been largely peaceful, but there were reports of clashes in the town of al-Arish, in the north of the Sinai peninsula, after about 1,000 protesters attacked a police station.
Several people were injured as gunfire was exchanged and petrol bombs thrown, witnesses said. Several vehicles were set on fire.
Cairo resident Sherine Barakat told the BBC on Friday that she did not think there would be violence between the protesters and the army.
"Yesterday in the square soldiers were saying: 'If you march to the palace, no officer will stand in your way'. I think the army will help the people," she said.
In his televised speech on Thursday evening, Mr Mubarak said he planned to stay in office until September's polls. He pledged to hand over some powers to Mr Suleiman but the details were unclear.
The Egyptian embassy in Washington said the changes meant Mr Suleiman was now the de facto president.
But the crowds in Tahrir Square reacted with fury, yelling "be gone" and waving their shoes in acts of defiance.
Mr Mubarak had been widely expected to stand aside. Instead, his announcement has left uncertainty and confusion, analysts say.
After the speech, US President Barack Obama said the Egyptian people had been told there was a transition of authority "but it is not yet clear that this transition is immediate, meaningful or sufficient".
Expectations that Mr Mubarak might leave began to circulate on Thursday afternoon when a statement by army chiefs said it would remain "in continuous session" to discuss how to safeguard "the aspirations of the great Egyptian people".
Hossam Badrawi, the new secretary general of the governing NDP, then told the BBC he would be surprised if Mr Mubarak was still president on Friday.
The anti-government protests that began on 25 January were triggered by widespread unrest in Egypt over unemployment, poverty and corruption.
They followed a popular uprising in Tunisia which brought about the downfall of President Zine al-Abidine Ben Ali.