Egyptian attempts to increase state control over the Sinai peninsula have motivated fundamental socioeconomic transformations among the Bedouin of South Sinai. This transformation is leading to a convergence in “real culture” (the living habits and social norms in a society). However, instead of spurring a process of social homogenization as envisioned by the authorities, integration is strengthening identity boundaries between Sinai’s Bedouin and the expanding population of migrant workers. This is due to the increasing contact and dependence on outcomes of Egyptian development, including infrastructure and communications and the creation of local markets available to the Bedouin. The increasing friction between the state and the Bedouin results from the state’s failure to recognize that these transformations have created new pressures on the Bedouin to seek a higher level of participation in urban, nationally-controlled life. Egyptian policies have created a gap between the socioeconomic demands of the urbanizing Bedouin community and the opportunities available to them, leading to friction between the Bedouin and the Egyptian state as proximity and interaction increase. These transformations have often developed at odds with Egyptian goals highlighting a clash of interests. Activities like smuggling and narcotics distribution are made both possible and lucrative due to the existence of the modern nation-state. Furthermore, tourism has led to the economization of “symbolic culture” (symbols, values, and traditions ascribed through membership to a descent group), increasing the real value of a distinctive, Bedouin culture in Sinai. The relationship between state perceptions and policies on the one hand and Bedouin reactions including transformation and identity formation on the other is the subject of this study. This paper contends that identity formation and the emergence of the Bedouin as a social minority in Egypt is a result of state development planning that created for the Bedouin a marginal physical and cultural role in the nation. Field research in Dahab in conjunction with historical records and anthropological studies from South Sinai formed the basis for tracking these important socioeconomic changes as well as constructing a broad picture of Bedouin self-image and attitudes towards the Egyptian state and society. Social and political theory, guided by questions posed in Tribes and State Formation, provided the lens through which these observations were analyzed to arrive at a better understanding of the intended and unintended consequences of state-building, and how tribal responses are both similar and different from those of non-tribal minority groups.