Three tourists and four hotel workers were injured after a fight broke out in the town of Taba near Egypt's border with Israel on Friday.
Sources said a physical altercation erupted when an Israeli tourist verbally insulted an Egyptian hotel employee, sparking a melee that involved other tourists and employees.
Egypt's state-affiliated Al-Qahera News television channel said one of Egyptian workers had sustained serious injuries.
"Arab 48" is a term that refers to Palestinians and their descendants who remained in Israel following its creation in 1948.
Friday's fight broke out between hotel staff and the tourists "who attempted to obtain services from the hotel without charge," the channel reported.
Al-Qahera News, which is linked to state intelligence, reported security authorities were investigating the incident.
A high-level security source denied Israeli media reports describing the altercation as a "stabbing operation."
The incident occurred in the Egyptian town of Taba in South Sinai, which is on the border with Israel and a popular tourist destination for Israelis.
Egypt was the first Arab country to sign a peace treaty with Israel and has for decades played a key role as a mediator between Israeli and Palestinian officials, including in the current war in the Gaza Strip.
