Fighting flares in al Qaeda-held Yemen city (Reuters)

SANAA (Reuters) – Fighting flared on Tuesday in a southern Yemen city seized by al Qaeda and other Islamist militants, killing at least 15 people, after Washington urged President Ali Abdullah Saleh to hand over power peacefully.

Saleh left for Saudi Arabia at the weekend for surgery on wounds suffered in an attack on his palace in Sanaa -- an absence that could be an opportunity to ease him out of office after nearly 33 years ruling the impoverished Arab nation.

Global powers worry that chaos would make it easier for the Yemen-based wing of al Qaeda to operate and multiply risks for neighboring Saudi Arabia and other Gulf oil producers.

"We are calling for a peaceful and orderly transition," U.S. Secretary of State Hillary Clinton said on Monday, adding that this would be in the best interests of the Yemeni people.

Yemen's acting leader, Vice President Abu-Rabbu Mansour Hadi, said Saleh would return within days, but the position of Saudi Arabia, which has traditionally played an influential role in Yemeni politics, could now be decisive.

Saudi officials say they will not interfere in Saleh's decision to return to Yemen or not, but Western powers may want to revive a Gulf Cooperation Council-brokered transition deal that would have secured Saleh's resignation.

"Saleh's departure is probably permanent," said Robert Powell, Yemen analyst at the Economist Intelligence Unit.

"The Saudis, as well as the U.S. and European Union, are pushing hard for him to stay in Saudi Arabia, as they view the prospect of his return as a catastrophe.

"Prior to his departure, the country was slipping inexorably into a civil war. However, his removal has suddenly opened a diplomatic window to restart the seemingly failed GCC-mediated proposal. It seems Saudi Arabia and other interested parties are unwilling to allow Saleh to derail it this time."

Al Qaeda in the Arabian Peninsula (AQAP), which has used its Yemen base to stage daring but abortive attacks on Saudi Arabia and the United States, seized the southern city of Zinjibar about 10 days ago with other militants. The city is near a shipping lane where about 3 million barrels of oil pass daily.

Locals and Yemeni troops have stepped up fighting to retake Zinjibar, local official said. More casualties are expected in the city, once home to about 50,000 people, but now mostly a ghost town due to the battle for control.

There was also fresh fighting in the city of Taiz, south of Sanaa. A Saudi-brokered truce was holding in the capital after two weeks of fighting between Saleh's forces and tribesmen in which over 200 people were killed and thousands forced to flee.

POWER TRANSFER

Saleh, a wily political veteran, has defied global calls to accept the GCC-mediated power transition deal, backing away three times at the last minute from signing it.

Saleh, 69, was wounded on Friday when rockets struck his Sanaa palace, killing seven people and wounding senior officials and advisers in what his officials said was an assassination attempt. He is being treated in a Riyadh hospital.

The future of Yemen, riven by rivalries among tribal leaders, generals and politicians, is uncertain. Saleh's sons and relatives remain in Yemen, commanding elite military units and security agencies.

Other contenders in a possible power struggle include the well-armed Hashed tribal federation, breakaway military leaders, Islamists, leftists and an angry public seeking relief from crippling poverty, corruption and failing public services.

Youthful protesters have been celebrating Saleh's departure, but are wary of any attempt by the wily leader to return.

"In the near term, the biggest challenge is to set up a viable political reform process that has the general backing of the population, and allows Yemen to return to normal after months of unrest," the EIU's Powell said.

"In the medium term, Yemen's biggest challenge is economic -- already the poorest country in the Middle East, it is running out of oil and water, and unless it can find alternative drivers of growth an economic collapse is entirely feasible," he said.

(Additional reporting by Arshad Mohammed in Washington, Mohammed Mukhashaf in Aden and Alistair Lyon in London; Writing by Jon Herskovitz; Editing by Alistair Lyon)

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Yemeni air force bombs al Qaeda-held city (Reuters)

SANAA/TAIZ (Reuters) – The Yemeni air force bombed an al Qaeda-held southern city on Monday and residents in another city said soldiers had opened fire on a demonstration and run protesters over with bulldozers, killing at least 15.

In the latest sign Saudi Arabia's neighbor was moving toward civil war, six soldiers were killed in what appeared to be an ambush near Zinjibar, a coastal city taken over a few days ago by Islamist and al Qaeda militants.

Residents said jet fighters later strafed militant positions with bombs.

Global powers are worried the country, already on the verge of financial collapse and home to al Qaeda militants, could turn into a failed state that threatens the oil-rich region and Saudi Arabia, the world's biggest oil exporter.

A brief calm was shattered on Sunday when forces loyal to President Ali Abdullah Saleh opened fire on protesters in Taiz, killing at least 15 people and wounding hundreds, hospital sources said, adding the death toll was almost certain to rise.

"Most of the wounded were hit by live bullets, but some were run over by bulldozers," a medical source said from a field hospital.

Fresh protests are planned on Monday in Taiz, where Saleh's troops have burned tents used by demonstrators and parked armored vehicles in a protest area known as "Freedom Square."

Security forces arrested dozens on Monday, trying to head off the rally demanding an end to Saleh's nearly 33 year rule.

"Security forces are chasing youths in alleys after soldiers close down the city's entry points," said pro-reform activist Boshra al-Maqtari.

Opposition leaders have accused Saleh of allowing the city of Zinjibar, on the Gulf of Aden, to fall to al Qaeda and Islamist militants in order to raise alarm in the region that would in turn translate into support for the president.

The six soldiers were killed and dozens wounded as they were traveling to Zinjibar, a security official and others said. The official did not know who was responsible for the attack.

"Civilians found a military car and an armored vehicles. They were destroyed, and the bodies of six soldiers were found on the roadside," Ayman Mohamed Nasser, editor-in-chief of Attariq, Aden's main opposition paper, said by telephone.

Several hundred al Qaeda and Islamist militants took over the city a few days ago and have been battling locals and government soldiers for control.

Zinjibar residents told Reuters power and water had been cut off and many civilians were fleeing to nearby towns.

TROUBLE IN TAIZ

In Taiz, about 150 km (95 miles) to the northwest, police on Sunday night fired live ammunition and tear gas to disperse demonstrators outside a municipal building demanding the release of a fellow protester who was arrested on Saturday.

The clashes took place near Freedom Square where thousands of anti-government protesters have been camping since January to demand Saleh's ouster.

In the capital Sanaa, about 200 km (124 miles) north, several explosions were heard on Sunday night in the district of Hasaba, the scene of week-long fighting between Saleh's forces and a rival tribe in which 115 people were killed, residents said.

There were no immediate details of the explosions, which may have breached a truce between Saleh's forces and the powerful Hashed tribe led by Sadeq al-Ahmar to stop the bloodiest fighting since unrest erupted in January.

BLOOD ON THE STREETS

About 300 people have been killed over the past months in demonstrations demanding an end to Saleh's nearly 33-year reign in Yemen, by protesters inspired by the "Arab Spring" movement which toppled the long-standing rulers of Tunisia and Egypt.

Tribal leader Ahmar condemned what he described as "Saleh's new massacre" of civilians in Taiz.

A breakaway military group called for other army units to join them in the fight to bring down Saleh, piling pressure on him to end his three-decade rule over the destitute country.

Generals and government officials began to abandon Saleh after deadly crackdowns on protesters started in force in March. There have been no major clashes yet between the breakaway military units and troops loyal to Saleh.

Despite demands by global and regional powers that he step down, Saleh has refused to sign a deal, mediated by Gulf states, to start a transition of power aimed at averting civil war that could shake the region that supplies much of the world's oil.

Fears are growing that Yemen-based al Qaeda in the Arabian Peninsula (AQAP) will exploit such instability, analysts said. The United States and Saudi Arabia, both targets of attacks by AQAP, are worried that growing chaos is emboldening the group.

Yemen, which sits beside a shipping lane through which about 3 million barrels of oil pass daily, is the poorest state on the Arabian Peninsula with about 40 percent of its 23 million people living on less than $2 a day.

(Additional reporting by Mohammed Ghobari in Sanaa, Mohammed Mukhashaf in Aden, Mahmoud Habboush and Nour Merza in Dubai; writing by Jon Herskovitz in Dubai; editing by Philippa Fletcher)

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