The Egyptian government is moderate but its peasants are militant (courtesy of the clerics). This is also true in Saudi Arabia. But unlike Mubarak who is trying to remain totally neutral, Crown Prince Abdullah has decided his best chances are with the militants.
President Bush also said that Islam is a peaceful religion, but I know he knows the truth. I suspect he knew he would need the help of Muslim states (Pakistan, Egypt, Saudi Arabia, Kuwait, Qatar, etc.) and did not want to offend them nor look the hypocrit at home.