“Our traditional cooperation cannot continue as usual when civilians are being killed,” Obama said, in remarks that came amid mounting violence in Egypt that has resulted in more than 500 deaths this week.

Obama’s cancellation of the biennial Bright Star joint military exercise between U.S. and Egyptian forces planned for this year serves as the administration’s latest effort to signal its displeasure with Egypt’s military government, which seized power in July.

“Let me say that the Egyptian people deserve better than what we’ve seen over the past several days,” Obama said, in remarks from Martha’s Vineyard. “To the Egyptian people, let me say that the cycle of escalation needs to stop.”

( Also on POLITICO: Death toll in Egypt violence rises to 525)

Obama did not directly address the $1.3 billion in aid the United States sends to Egypt, ignoring a question shouted by a pool reporter as he concluded his remarks.

But he did make clear that he believes the United States and Egypt will both be better off as partners, he warned that the the military government’s actions put the relationship at risk.

“Given the depths of our partnership with Egypt, our national security interests in this critical part of the world and our belief that engagement can support a transition back to a democratically elected civilian government, we’ve sustained our commitment to Egypt and its people,” Obama said. “And while we want to sustain our relationship with Egypt, our traditional cooperation cannot continue when civilians are being killed in the streets and rights are being rolled back.”

Obama acknowledged the perilous state of American power in the region, with the United States unable to exert its influence to stop violence, even as it’s blamed by both sides of the conflict for the current mess. Responsibility for reaching a peaceful solution, Obama said — as he has many times before — lies with the Egyptian people, not the United States.(

( Also on POLITICO: Obama’s full remarks)

“I know its tempting inside of Egypt to blame the United States or the West or some other outside actor for what’s gone wrong,” he said. “We’ve been blamed by supporters of Morsi. We’ve been blamed by the other side as if we are supporters of Morsi. That kind of approach will do nothing to help Egyptians achieve a future that they deserve. We want Egypt to succeed. We want a peaceful, democratic, prosperous Egypt. To achieve that, the Egyptians are going to have to do the work.”

( Also on POLITICO: Egypt: Explaining the current situation)

And Obama made yet another plea to the Egyptian authorities and protestors to refrain from violence, end the imposed state of emergency and seek a peaceful political solution that has evaded them since longtime President Hosni Mubarak was thrown from power in 2011.

“Let me say that the Egyptian people deserve better than what we’ve seen the past several days,” Obama said. “We call on the Egyptian authorities to respect the universal rights of the people. We call on those who are protesting to do so peacefully. We believe that the state of emergency should be lifted and the process of national reconciliation should begin, that all parties need to have a voice in Egypt’s future.”

( WATCH: McCain talks next steps in Egypt)

Of the canceled bilateral Bright Star military exercises, which date to the 1980 Camp David Accord, Obama said the move may just be the beginning of the ramifications for Egyptian violence.

“This morning we notified the Egyptian government that we are cancelling our biannual joint military exercise, which was scheduled for next month,” Obama said. “Going forward, I’ve asked my national security team to assess the implications of the actions taken by the interim government, and further steps that we may take as necessary.”

The congressional end-Egypt-aid caucus found little solace in Obama’s decision to cancel the military exercises.

“President Obama says he ‘deplores violence in Egypt,’ but U.S. foreign aid continues to help pay for it,” wrote Sen. Rand Paul (R-Ky.) on Twitter.

Sen. Lindsey Graham (R-S.C.), who visited Egypt with Sen. John McCain (R-Ariz.) this month at Obama’s request, said the administration’s Middle East efforts are a failure.

“From Benghazi to Cairo to Damascus to Baghdad we’re failing across the board. President Obama’s foreign policy is not working,” Graham wrote. “If #Egypt becomes a failed fractured state, I just cannot imagine what #Israel’s future looks like.”

On Wednesday Secretary of State John Kerry called the government’s violent removal of protesters loyal to ousted president Mohammed Morsi “deplorable” and called the actions “a serious blow to reconciliation.”

Yet Kerry, speaking from the State Department, announced no new policy while condemning the bloody clashes in Cairo. Spokespeople for the White House and Kerry both parried questions about what, if anything, the administration could or would do to show its displeasure with Egypt’s rulers.

Kerry, speaking from the State Department Wednesday, announced no new policy while condemning the bloody clashes in Cairo. Spokespeople for the White House and Kerry both parried questions about what, if anything, the administration could or would do to show its displeasure with Egypt’s rulers.

The White House has been under increasing pressure to cut off the $1.3 billion in aid it gives to Egypt annually. McCain used the violence as an opportunity to once again criticize the administration’s foreign policy.

“As we predicted and feared, chaos in #Cairo. Sec Kerry praising the military takeover didn’t help,” McCain wrote on Twitter Wednesday. On Thursday he linked to a Washington Post editorial that called the administration “complicit” in the crackdown, calling it a “must-read.”

Last month, Paul forced a Senate vote on ending U.S. aid to Egypt. The vote, an amendment to transportation funding legislation, failed on an 86-13 vote, with McCain among those voting against ending aid.

- Burgess Everett contributed reporting