Here you can have some no-nonsense grilled fish and there is even a fetir shop. There is good food to be had in Dahab at good prices, but pay particular attention to freshness and cleanliness. If its reading material you want while lounging out on the beach, a newspaper man makes rounds every day at around noon. His prices are a bit steep, but you can get everything from Al-Ahram to The Independent and The Sunday Times. Alternately, at most supermarkets you can rent or buy second-hand paperback novels left by tourists before you.
Water sports are the obvious answer, with snorkelling and diving topping the agenda.
There is an abundance of diving centres where you can rent equipment and receive training, but take care in choosing a centre, especially if you are a novice. I am nonetheless an avid amateur snorkeller and can vouch for a good time if you follow the route between the Eel Garden and around the lighthouse. A word of caution, however, watch where you go in and out of the water. If they are not easily accessible, you risk cutting yourself on the rocks. It happened to a friend of mine a year back and although we received good service at the Dahab hospital, the experience was quite unpleasant.