Since US-Egyptian relations deteriorated following the summer 2013 military coup in Cairo, which resulted in both pro-Mohamed Morsi and pro-General Abdel Fattah al-Sisi camps distrusting the United States, the Sisi military-led regime has labeled the Muslim Brotherhood as a “terrorist organization,” and simultaneously terrorist attacks in northern Sinai and even in parts of Cairo have escalated. Obscure Al Qaeda-affiliated groups proliferating in northern Sinai have emerged, and the need for security cooperation with the U.S. for counter-terrorism (CT) in Egypt has never been greater. Egyptians now harbor unprecedented anger and distrust towards the United States. Yet, Foreign Military Funds (FMF) and security assistance have not been cut off completely, despite the frayed bilateral relations. From the Egyptian military regime’s perspective, the U.S. is very likely seen as their “frenemy,” while nonetheless essential for high-technology reconnaissance, surveillance, and CT measures and operations. While bilateral relations have suffered significantly, they have not been rendered completely obsolete, as the integrity of the Egyptian-Israeli Camp David Accords and US military sales to Egypt remain as crucial national interests on both sides. This paper applies Putnam’s 2-Level Game Theory to US-Egyptian relations involving domestic CT strategies in Egypt. Putnam involves simultaneous negotiations at the domestic (Egypt) level and internationally between governments (the US and Egypt). The study posits that Egypt’s current domestic terrorism problem compels the military-led regime to maintain security cooperation with the United States, despite deteriorating bilateral relations since the 2013 coup. Overshadowing this dynamic is a new trend of Egypt building relations with Russia, which will also be part of this analysis within the Putnam theoretical framework. The author has lived in Egypt for four years, and also utilizes primary-source interviews and government documents for this analysis. In addition, this paper will constitute a chapter in a book manuscript about the Arab Awakening.