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Egypt's newly elected president begins to hammer out issues with the military.

CAIRO - As Mohammed Morsi moved Monday into the presidential office last occupied by Hosni Mubarak, the contours emerged of a deal that led Egypt's military council to bless the Islamist as the country's first freely elected head of state.

The complex web of issues still to be hammered out ranges from what to do about the dissolved parliament and the drafting of a new constitution to who will head the Cabinet and hold the key defense and foreign ministries.

Still, the country breathed a sigh of relief that at least the question of who won the presidential runoff had been resolved on Sunday when Egypt's election commission officially recognized the 60-year-old U.S.-trained engineer as the first civilian and the first Islamist to hold the post.

People returned to work a day after a panic sent many home early for fear that violence might erupt when the winner was announced. Traffic was flowing again through Cairo's Tahrir Square, the birthplace of last year's uprising, which had been blocked by Morsi supporters protesting against the military's power grab.

Newspapers were brimming with upbeat headlines after a week of rumors and scaremongering. "Morsi president on orders from the people: The revolution reaches the presidential palace," said a banner headline in independent daily Al-Shorouk.

Still, Morsi's recognition as president-elect does not resolve the larger standoff between the generals and his Muslim Brotherhood over the institutions of government.

After the generals stripped the presidency of most of its major powers in recent weeks, Morsi takes office without a clear picture of his authorities or what he can do to resolve Egypt's most pressing issues, including restoring stability and security and improving the struggling economy.

Morsi narrowly defeated Ahmed Shafiq, Mubarak's last prime minister and a former air force general, in a race that deeply polarized the nation and threatened to unleash violent protests. Now he faces a daunting struggle for power with the still-dominant military rulers who took over after Mubarak's ouster in the uprising.

State TV showed footage of Morsi meeting Monday with the ruling military council headed by Field Marshal Hussein Tantawi, who was Mubarak's defense minister for 20 years. The TV quoted Tantawi as saying the military will "stand by the elected, legitimate president and will cooperate with him for the stability of the country."

Morsi also met with the military-backed prime minister, Kamal el-Ganzouri, who resigned Monday and was asked to head a caretaker government until Morsi nominates a new one.

Lawmakers and mediators were tight-lipped about the details of the negotiations, although they acknowledged that a few rounds of talks with the generals took place last week and are ongoing - a sign that much remains undone.

"There is a political settlement initiative that takes everyone's concerns into account," said Muslim Brotherhood member and lawmaker Sobhi Saleh.