In 1996 the government of the Arab Republic of Egypt initiated a basic education enhancement program to extend full coverage to vulnerable groups, especially girls, and to raise the quality of instruction. The basic education reform program was followed in 1998 by the government's secondary education reform program, supported by the World Bank. In addition to these reforms, the Egyptian government committed itself to the increase of coverage for kindergarten (4- and 5-year-olds) from 12% to 65% of the age group. This report assesses the educational progress of Egypt, particularly in basic education, and identifies the issues that need to be addressed. The report states that at the level of basic education real progress has been made on narrowing regional disparities, reducing gender disparities, reducing class size, eliminating multiple shifts, increasing class instructional time, and introducing technology in the classroom. The report is divided into eight sections: (1) "Executive Summary"; (2) "Introduction"; (3) "Changing Context for Education Reforms"; (4) "Progress on Education"; (5) "Education Finance and Expenditure"; (6) "Key Challenges"; (7) "Policies, Financial Implications, and Financing Options"; and (8) "Bibliography" (38 items). Attached are two annexes: (1) "Estimated NPV Costs of Implementing Policy Recommendations; and (2) "Financing the Reform" (two tables). (Contains 23 figures and 16 tables.) (BT)