Samson Siasia’s men needed just a win to go through to the last four of the competition.
At half-time they were on course for the victory, with a 2-0 advantage, thanks to two penalties from Midfielder, Etebo Oghenekaro, who scored from the spot in the 20th and 30th minute.
But the Pharaohs responded strongly in the second half scoring twice in the space of five minutes to neutralize the scores courtesy of Ramadan Sobhi Ahmed and substitute Mamdouh El Sayed.
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Earlier, Algeria boosted their hopes of qualifying for next year’s Olympics with a 2-0 win over Mali in Wednesday’s first Group B match.
Mali were the better side for long periods, but the loss means they cannot now advance to the semi-finals.
The result leaves Nigeria, Algeria and Egypt in contention for the group’s two tickets for the next round. Dream Team face Algeria on Saturday in the last Group B game while Egypt seek their first win against Mali.
The top three from the tournament will claim places at the men’s football tournament at the 2016 Olympic Games in Rio.