"There are two worlds, two halves, two views -- that of a free world and that of a radical world," he said. "Which one will prevail in Egypt?"
Netanyahu said he believed the standoff in Egypt could last "for a long time" and as a result could destabilise the whole region.
Egypt was the first state to make peace with Israel after four wars, initiating 30 years of calm on Israel's southern border, although relations have not always been friendly.
The Israeli Premier compared the situation to Iran in 1979 when mass protests forced out the Western-backed shah to be replaced by the exiled Ayatollah Ruhollah Khomeini who returned to set up the Islamic republic in 1979.
Since then, Iran has been Israel's fiercest enemy.
Analyst Alon Liel said that if Mubarak was replaced by Islamist party, the Muslim Brotherhood, it was unlikely to be less friendly to Israel as it would mean harming its ties with Washington, which gives Cairo 1.5 billion dollars in aid each year.
"I don't know if the next government would like to disassociate itself completely from the US," he told the Jerusalem Post newspaper.
"Breaking the peace, or not respecting it, will mean not only the end of relations with Israel but also with Washington, and that is a huge, huge decision for Egypt."
Eyal Zisser, a Middle East historian at Tel Aviv Univeristy said Muslim Brotherhood victory was almost inevitable at Egypt's next election, to be "followed by a long period of uncertainty in Israel-Egypt relations."