The targeting of unarmed civilians and journalists, including American journalists, crosses a line. Reports at the moment are that machine gun fire is erupting in al-Tahrir Square. For the more cynical, it is surprising that this crackdown didn't come sooner. Such a response is typical an authoritarian regime. Coming so late, it demonstrates a last ditch effort by President Mubarak to hold on to power.
So what should the administration do?
Already it has used strong language against the violence, saying it "strongly condemns the outrageous and deplorable violence that's taken place on the streets of Cairo." The statement places no blame on Mubarak. However, the administration is likely trying to avoid getting entangled in the story. If they do, two bad things will happen:
1) They will get blamed for anything that goes wrong
2) They will shift the story away from Mubarak
At the moment, the US is playing only a secondary role in this drama, and it is in its interest to keep things that way. Still, the administration must be careful not to look like it is tacitly condoning Mubarak's brutal tactics as the situation escalates in the next few days.