The United States earlier this month condemned Egyptian security forces for firing on protesters backing ousted president Mohamed Morsi, in a crackdown that left nearly 1,000 people dead.
"The interim government has to get back on the path to reconciliation, stop the violence, put Egypt back on the path of economic, democratic reform," Hagel said in an interview with the BBC aired Wednesday.
"Now do you do that best by cutting off all aid?
"Maybe eventually that happens, but I don't think you can take that approach initially, you have to respond and we've made it clear what we'd like to see happen," said Hagel, in Brunei for a meeting of regional defence ministers.
Hagel did not rule out eventually shutting off the flow of $1.3 billion in annual military aid to Cairo, but he stressed the importance of maintaining the decades-long alliance with Egypt, calling it a source of stability that had reinforced US interests.
"We've had strong partnerships with Egypt for many years starting with the peace treaty between Israel and Egypt that the US brokered in 1979 that essentially prevented the region from breaking out into a regional war," he said.
"Egypt has played a responsible part of that, been a very responsible partner."
The United States "wouldn't necessarily agree with the forms of government, the dictatorships, but... we would not want to see the disintegration of a relationship with a large important country like Egypt," he said.
Echoing similar remarks he made earlier this month, Hagel said America's influence with Egypt had limits.
"So we've tried to help where we can, within the boundaries where we can affect influence where we can," Hagel said. "You can't go in and impose. It's up to the Egyptian people what kind of future they want and what kind of government they want."
AFP/ JERUDONG, Brunei