Did Ancient Egyptians in the 2nd millennium BC practice Astrology?

First off, in ancient cultures, astronomy and astrology were virtually the same discipline. There were certain practical aspects to the study of astronomy, particularly the measurement of time and the development of calendar systems, but outside of that, there was little or no abstract, scientific study of astronomy for its own sake:

Astronomy:

Astronomy is the oldest of the natural sciences, dating back to antiquity, with its origins in the religious, mythological, and astrological practices of pre-history: vestiges of these are still found in astrology, a discipline long interwoven with public and governmental astronomy, and not completely disentangled from it until a few centuries ago in the Western World (see astrology and astronomy). In some cultures astronomical data was used for astrological prognostication

Only at a relatively late period did the study of astronomy for its own sake begin to develop:

...A particularly important early development was the beginning of mathematical and scientific astronomy... The Babylonians discovered that lunar eclipses recurred in a repeating cycle known as a saros... Following the Babylonians, significant advances in astronomy were made in ancient Greece and the Hellenistic world...

So, if the ancient Egyptians were astronomers, we can be fairly certain they were also astrologers:

Astrology consists of several systems of divination based on the premise that there is a relationship between astronomical phenomena and events in the human world. Many cultures have attached importance to astronomical events, and the Indians, Chinese, and Mayans developed elaborate systems for predicting terrestrial events from celestial observations....

The very fascinating discipline of Archaeoastronomy has revealed that the ancient Egyptian temples and monuments were astronomically aligned:

The Orientation of Egyptian Temples:

The precise alignment of temples and pyramids was undoubtedly a result of astronomical observation. (A feature noticeably absent from Djoser's pyramid at Saqqara). Sir Norman Lockyer suggested that several of the great Egyptian temple complexes were orientated towards astronomically significant points on the horizon. His theories are disputed to this day even though there is now a substantial amount of supporting research in favour of his original suppositions...

A clear division can be identified between the orientation of ancient Egyptian temples of upper Egypt when compared with those of Lower Egypt. Lockyer (2), made note of the fact that whereas the early dynastic northern 'Memphite' pyramids, Giza pyramids, and Sphinx were orientated cardinally to face equinoxial phases of the solar cycle, the great temples in the south of Egypt, such as Karnack, the Colossi of Memnon and Abydoss, were all orientated to capture the suns rays on Solstice days of the year.

Nabta Playa: (Stone Circle):

Article - Science Daily 1998

An assembly of huge stone slabs found in Egypt's Sahara Desert that date from about 6,500 years to 6,000 years ago has been confirmed by scientists to be the oldest known astronomical alignment of megaliths in the world.

Known as Nabta, the site consists of a stone circle, a series of flat, tomb-like stone structures and five lines of standing and toppled megaliths. Located west of the Nile River in southern Egypt, Nabta predates Stonehenge and similar prehistoric sites around the world by about 1,000 years, said University of Colorado at Boulder astronomy Professor J. McKim Malville...

And much more there: Egyptian Astronomy

If so, it's quite clear that the Ancient Egyptians believed that there were intimate connections between their earthly activities and religious practices, and those of the visible heavens, as expressed in these many astronomically aligned structures: Divination based on the premise that there is a relationship between astronomical phenomena and events in the human world.

According to the main authoritiy on ancient astronomy and astrology, Otto Neugebauer, astrology was introduced to Hellenistic world from Babylon. (If you not know who he is, look at this Wikipedia article http://en.wikipedia.org/wiki/Otto_Neugebauer). Here is what he writes on Egypt in general:

Egypt provides us with the exceptional case of a highly sophisticated civilization which florished for many centuries without making a single contribution to the development of the exact sciences...

This strongly contradicts to what many other authors (ancient and modern) say about Egyptian astronomy and mathematics, but on my opinion, Neugebauer had really studied this question carefully, unlike those other authors. The legends about Egyptian math and astronomy come from the Ancient Greece, and later they were uncritically repeated by other authors. Modern research shows that these are really legends.

Moreover, Neugebauer, who was mostly interested in the history of astronomy, also carefully studied Hellenistic horoscopes, trying to find there interesting information about astronomical knowledge. He places the origin of astrology at about -1000 in Babylon. This "science" penetrated to the West (including Egypt) after Alexander's conquest.

His book (second reference below) contains an interesting graph showing the number of known Hellenistic horoscopes distributed by years. (A horoscope is relatively easy to date precisely from the information contained in it). According to this graph, there are none before the year -100, and the sharp maximum falls on the year 100, with sharp decrease by 200, and very sharp decrease around 500, when pagan science (including mathematics and astrology) was formally banned by Justinian.

It is true that most horoscopes are found in Egypt, but this was Hellenistic Egypt, and majority were in written Greek, with some in (demotic) Egyptian.

Sources: A brief but very informative account is O. Neugebauer, The exact sciences in antiquity, Harper torchbooks, 1962. A comprehensive source is O. Neugebauer, A History of Ancient mathematical astronomy, in 3 vols., Springer 1975.

EDIT. I address some comments on my answer. Very few serious scientists would spend their time to study such nonsense as horoscopes. Neugebauer and his collaborators are actually the only scientists whom I know who did this. Surviving Hellenistic astronomy sources are so scarce, that literally everything which came to us from that time was carefully combed for even the smallest hints of relevant information. Perhaps I am missing something, and will be grateful if someone gives a reference to another reliable study. This does not include astrologers themselves, of course:-)