IBSHAR Egypt (Reuters) - At Egypt's border with the Gaza Strip, families are emptying their homes - lugging mattresses and furniture onto waiting vans as soldiers look on from armored cars.
In this village of Ibshar and eight more along the frontier, 680 houses - homes to 1,165 families - are being razed to seal off smugglers' tunnels and try to crush a militant insurgency in northern Sinai that has intensified since the army overthrew President Mohamed Mursi of the Muslim Brotherhood 16 months ago.
The operation's resulting no-mans-land - a security buffer 13.5 km-long and 500 meters deep - will provide greater visibility and, Egypt hopes, deter any future passage of arms from Gaza to militants who killed 33 security personnel on Oct. 24 in some of the deadliest attacks since the army took power.
No group has claimed responsibility for the attacks. But they bear the hallmarks of Ansar Bayt al-Maqdis, which is targeting police and soldiers in the Sinai Peninsula, a strategically important area that borders Israel, Gaza and the Suez Canal, the fastest shipping route between Europe and Asia.
Inspired by Islamic State, the al Qaeda offshoot now facing U.S.-led strikes in Iraq and Syria, Ansar recently began a campaign of beheadings against locals who have informed on its fighters.
Against that backdrop of fear, Egypt may only face heightened resistance if it proves successful in closing the tunnels. Many locals depend on income from illicit tunnel trade in all kinds of goods and without it could be tempted into the arms of insurgents, said one source from Ansar Bayt al-Maqdis.
"What the army is doing shows their weakness," the source said, speaking on condition of anonymity because members of his group are being sought by security forces. "But I say thanks to the army as this decision will push more people our way."
The stakes are high for Egypt, whose military rulers aim to prove their credibility by restoring stability and growth. They have sponsored Palestinian-Israeli ceasefire talks and unveiled a canal expansion plan that hinges on restoring investor trust.
That confidence could prove tough to win, if as some security sources say, last month's attacks mark a shift in militant tactics away from near-daily smaller roadside bombs towards larger car bombings that inflict mass casualties.
So far Egypt's army has stepped up air strikes on suspected militants but has shied away from a ground offensive. Security patrols have increased as forces clear the border strip, but spotting militants has proven tricky - they melt easily into a local community mistrustful of the state.
"The army's biggest problem is that the militants are part of the civilian population. You need to pick them out with a pin," said one security source.
Some residents say the new measures amount to collective punishment that will do little to rebuild loyalty to a central government that has long neglected them.
"I'm not leaving my house even if they kill me. I was born and raised in this house," said one woman sitting outside her home in Ibshar. "If they want the terrorists, they know where they are. There's no need to force us from our homes."
In northern Sinai, a night-time curfew is in force but streets are deserted by mid-afternoon. Internet and phone lines are disconnected some 16 hours a day, residents say. Checkpoints dot the main roads.
The Bedouin clans that form most of the region's population have long complained at the lack of jobs and opportunities that they say drives many locals into the tunnel smuggling trade.
Across the fence in Gaza, tunnels have proven a similar lifeline for Palestinians, circumventing tight Egyptian and Israeli trade restrictions to supply desperate civilians with humanitarian aid and building material.
Interviewed by Reuters in the past, those tunnel owners said their policy was to take a fee and ask no questions about the consumer goods, people or arms that come and go. One Egyptian tunnel operator said recently the passages cost some $300,000 to build and could bring in up to $200 a day.
While Egypt has destroyed most of the larger tunnels once used to smuggle cars and trucks, hundreds of smaller tunnels have evaded detection and their owners say they did lucrative business during Israel's 50-day war in Gaza over the summer.
Last month's attack prompted Egyptian authorities to redouble their efforts to find and shut those tunnels. A key part of that was the operation, which began last week, to create a no-mans-land that would provide better visibility.
Egypt has offered compensation to residents who leave their homes, handing out 900 pounds($125) to cover three months temporary accommodation in the north Sinai town of Arish while it calculates the payment they will receive for lost properties.
But those who refuse to go willingly forfeit the right to compensation. And owners of homes found to contain tunnels would receive no money and could face arrest, said General Abdel Fattah Harhour, governor of northern Sinai, last week.
"The residents who don't want to leave are the ones who operate tunnels. Why would they be attached to a piece of desert here but be reluctant to go to one elsewhere?" said one of the military officers leading the operation.
More than 200 houses were bulldozed or dynamited in the plan's first few days - revealing no less than 117 passages, the officer said. The entrance to one was hidden beneath a large bathtub filled with water. Another surfaced inside a mosque.
"I cannot believe the large number of tunnels we have found," the officer said, speaking on condition of anonymity.
Almost a kilometre back from the frontier with Gaza sits the village of al-Sarsouriya, a cluster of houses that are not so far targeted for clearance.
Inside one home, which looks no different from its neighbours, the owner opens a door to reveal the entrance to a tunnel, now bricked-up.
"We had to do this until the situation calms down," the owner said. "God willing, they will be satisfied with their 500 meters and won't come calling on us."
But northern Sinai governor Harhour said the 500-meter zone was only the beginning, explaining that if security forces found more tunnels, they would expand the demolitions, creating a greater distance between the last building and the border.
In a bid to prevent smugglers from burrowing anew, security forces also plan to dig a water-filled trench more than 2 km long and 30 meters deep.
Mona Barhoum, a political activist who lives in the border town of Rafah, observed that any long-term stability would depend on engaging local people.
"Destroying homes will not resolve the tunnels problem. This requires a political solution," she told Reuters.
The Ansar Bayt al-Maqdis source, asked what he thought of the army's extensive campaign, scoffed: "We have enough weapons and we have other ways of getting them - from inside Egypt itself."
Reporting by a Reuters journalist whose name was witheld for security reasons; Additional reporting by Yusri Mohamed in Ismalia; Writing by Lin Noueihed in Cairo; Editing by Sophie Walker