Israel on Wednesday commemorated its first peace treaty with an Arab state but its partner Egypt virtually ignored the 30th anniversary amid lingering opposition to the historic deal that dramatically changed the face of the Middle East.

Three decades after then Israeli prime minister Menahem Begin and Egyptian president Anwar Sadat's historic handshake on the White House lawn, there is little doubt the peace deal has fallen short of initial expectations.

Relations between the two neighbours have cooled and although Israel followed the Egyptian deal with a peace treaty with Jordan in 1994, a comprehensive peace with all its Arab neighbours remains elusive.

Commemorative events in the Jewish state were subdued at best, although the foreign ministry was to host a formal reception with Egypt's ambassador Yasser Reda one of the invited guests.

"Our ties with Egypt are as good as ever. They might not be as extensive as we wish they would be but on the overall balance of things there is certainly reason to celebrate," Israel's ambassador to Egypt Shalom Cohen said on the sidelines of a conference in Jerusalem to mark the anniversary.

But in Egypt, foreign ministry spokesman Hossam Zaki told AFP: "No commemoration is planned in Cairo."

The watershed deal Begin and Sadat signed on March 26, 1979 in the presence of US president Jimmy Carter put an end to 30 years of Israeli isolation in the Middle East.

It also opened the door to massive aid to Egypt from the United States, which has sent about two billion dollars a year to the Arab world's most populous nation since 1979.

Despite initial euphoria in Egypt, the treaty drew condemnation from much of the Arab world and Sadat paid the price for peace with his life, assassinated at a military parade in 1981 by an Islamist militant.

And in nearly three decades in power, Egyptian President Hosni Mubarak has never once followed in the footsteps of Sadat, whose landmark visit to Jerusalem in 1977 marked a turning point in relations.

Israel's deadly three-week onslaught on the Gaza Strip at the turn of the year triggered renewed hostility in Egypt, which has long played a role of mediator in peacemaking after fighting four wars with the Jewish state.

Since the end of the Gaza war, Cairo has acted as an essential go-between to try to hammer out a sustainable truce between Israel and Hamas, the Islamist roules of the tiny Palestinian enclave.

But domestic pressure prompted the Egyptian government to publicly criticise Israel's conduct of the talks.

And Israeli prime minister-designate Benjamin Netanyahu's decision to name ultra-nationalist Avigdor Lieberman as his foreign minister has further cooled already tepid relations.

Lieberman, who critics dub a racist for his diatribes against Israeli Arabs, triggered a diplomatic spat last year when told Mubarak he could "go to hell" if he didn't visit Israel.

Israel's foreign ministry acknowledged that "despite the solid foundations of Israeli-Egyptian relations, there are still many goals to be achieved.

"Israel yearns to see the peace with Egypt become a vibrant, prolific peace in all fields. It is our hope that the two nations will dedicate the coming years to achieving that goal," it said.

Although Israeli tourists do visit Egypt, the vast majority head to the Red Sea resorts of the Sinai, which Israel withdrew from in 1982 in line with the 1978 Camp David accord.

While the Sinai resorts are to some degree insulated from the rest of the country, there have been three deadly bomb attacks claimed by Al-Qaeda loyalists against tourist targets in recent years.

Israel also vaunts its economic links with Egypt, including Qualified Industrial Zones that allow the two countries to export duty free and a disputed contract to supply Egyptian gas to Israel.

But although trade rose more than fourfold over the four years to 2008, it still totalled only 271 million dollars last year.

"We could call it a schizophrenia that verges on the denial of reality," Egyptian researcher Emad Gad said of Egypt-Israel ties.

"A cold peace has been implemented. In the upper echelons of society there is dialogue and business. Below, there's nothing, or worse."