* Explosives found buried underground

* Discovery follows arrests over alleged Suez Canal plot

(Refile to correct typo in headline)

ISMAILIA, Egypt, July 10 (Reuters) - Egypt has seized 700 kg (1,540 lb) of explosives in a mountainous area near its border with Israel, a security source said on Friday, one day after 26 people were arrested on suspicion of targeting the Suez Canal.

The source, who declined to be identified, said the cache was found on Thursday evening in a mountainous area south of el-Arish and was likely to be smuggled to Gaza.

The source added that residents had alerted security forces to the cache, which was buried two metres (6.6 feet) below the ground. No one was arrested, but there was evidence the cache had been used recently, the source said.

On Thursday, Egypt's interior ministry said it had arrested 26 people suspected of plotting to target oil pipelines and foreign ships in the Suez Canal, which separates the Sinai peninsula from the rest of Egypt. [ID:nL9615740]

Egypt has taken a tough line again smugglers and migrants seeking to move goods and people across the borders with both Israel and the Gaza Strip. Police shot dead at least 28 African migrants at the border last year.

The government stepped up security measures against smugglers in April after prosecutors accused Lebanese group Hezbollah of planning attacks in Egypt through a group of 49 men. (Reporting by Yusri Mohamed; Writing by Alastair Sharp; Editing by Mark Trevelyan)

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