Cairo: The City Victorious by Max Rodenbeck is the best single book on Cairo -- part history, part love letter, full of insight into how the city became what it is. Rodenbeck grew up there and writes with the authority and affection of a local.
The Map of Love by Ahdaf Soueif is a novel that weaves together two love stories set a century apart, both involving foreigners drawn into Egyptian life. It captures the tension between East and West that has defined Egypt's modern history, and the Cairo it describes is vivid and real.
Naguib Mahfouz is the giant of Egyptian literature. Start with The Cairo Trilogy (Palace Walk, Palace of Desire, Sugar Street) for an epic portrait of a Cairo family through the first half of the 20th century, or Midaq Alley for a shorter, sharper look at life in the old city. Mahfouz won the Nobel Prize for Literature and no one has written about Cairo better.
The Yacoubian Building by Alaa Al Aswany is a modern Egyptian novel set in a once-grand downtown Cairo apartment building. It is frank about class, corruption, religion, and sexuality in ways that made it a sensation and a controversy when published. If you want to understand contemporary Egyptian society, this is essential reading.
A Thousand Miles up the Nile by Amelia Edwards is a Victorian travel classic from 1877 -- witty, perceptive, and surprisingly modern in its observations about traveling in Egypt. Edwards went on to help found the Egypt Exploration Fund and her descriptions of temples and ruins remain remarkably relevant.
The Pharaoh's Shadow by Anthony Sattin explores the echoes of ancient Egypt in modern Egyptian life -- folk customs, beliefs, and practices that have survived thousands of years of change. A fascinating and unusual angle on the country.