In Cairo’s symbolic Tahrir Square, the epicentre of protests that led to the overthrow of Hosni Mubarak in February 2011, fireworks, cheers and gunshots greeted the announcement on 24 June that Mohamed Mursi, the Muslim Brotherhood candidate, had won Egypt’s presidential elections.

Just 18 months ago, Mursi was a prisoner of the Mubarak regime; now he has emerged as his successor. Nothing else quite demonstrates the stunning turnaround in the history of the Middle East’s most populous nation.

The Brotherhood’s supporters welcomed Mursi’s election with jubilation in Tahrir Square. During the revolution, nearly 900 people were killed and 6,000 injured. The political turmoil has left Egypt’s economy reeling. Foreign exchange reserves have fallen to about $17bn, less than three months’ import cover, and investment and export levels remain weak. Initially greeted with enthusiasm, suspicion has been rising that the interim government of the Supreme Council of the Armed Forces (Scaf) is planning to cling on to power rather than handover to a democratic government.

Mursi’s election victory will provide some assurances that Scaf is prepared to relinquish power. It may even hasten the agreement on a package of IMF loans and improve foreign investor sentiment. If Ahmed Shafiq, a former military man and the final prime minister under Mubarak, had won the elections, it would have plunged Egypt into further chaos and been seen as the military quashing the revolution.

Unfortunately, it is not the final part of Egypt’s democratic transition, as had been hoped. Scaf has weakened the powers of the president, and in mid-June, it dissolved parliament and gave itself powers to write a new constitution and the budget. It also exempted the army from control by the president.

Relations between the army and the Brotherhood, which took the majority of the seats in the parliamentary elections, were already tense. The battle for power between the two will only intensify. Unless the interim government shows concrete steps to handing over more of the power it appropriated after Mubarak left office, political instability will continue. Scaf is scheduled to give up control in July, but after the dissolution of parliament it is unclear how long the military will hold on to power.

The Brotherhood must also be wary of using its success in both presidential and parliamentary elections to overlook other sections of Egyptian society that have felt disenfranchised by the rise of Islamists and failure of secular parties to gain political influence. It must ensure a new constitution is written for all citizens, not just Muslims. It will have to restore private sector and foreign investor confidence. Relations with other regional powers such as Qatar and Saudi Arabia have already improved, but the Brotherhood will have to work hard to reassure international powers that it should not be feared.

If it succeeds, it could open the door for a new wave of Islamist political power in the Middle East. That appears a long way off. At the moment, Mursi is in charge of Egypt only in name. He is not in charge of the army and he will not be responsible for writing the new constitution that guides Egypt into the future. He will also have limited powers over the budget and lacks a parliament to implement new legislation.

Mursi’s victory is welcome news, but Egypt’s transition still has a long way to go.