RPT-ANALYSIS-Yemen struggles against multiple challenges

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By Lin Noueihed
DUBAI, May 29 (Reuters) - Facing a revolt in the north, discontent in the south, a resurgent al Qaeda campaign and an influx of African refugees, impoverished Yemen is struggling just to keep itself in one piece.
Situated on main shipping lanes and next to the world's largest oil exporter, Saudi Arabia, Yemen's worsening problems raise red flags beyond its own Arabian Peninsula borders.
The government is battling a four-year-old revolt led by Abdul-Malik al-Houthi, a member of the Zaydi sect of Shi'ite Islam, which Sanaa says is backed by Iranian money.
Hundreds have been killed and thousands displaced by fighting in the northern province of Saada. It took a turn for the worse this month after a mosque bombing killed 15 people.
What began as southern job protests in April descended into 10 days of riots demanding secession for an area that is home to most of Yemen's oil but where many people feel marginalised.
"Yemen is running out of oil and water, its population is growing out of control and the regime is focused on protecting itself," said Bernard Haykel, Middle East Studies professor at Princeton University. "This is a recipe for disaster."
"The country can limp along like this for some time yet but this causes problems for Saudi Arabia as the worse things get the more people want to leave for the Gulf," he added.
Yemen is trying to diversify its economy as oil reserves dwindle but al Qaeda attacks that have killed 10 tourists in the past year mean a plan to boost tourism has been still-born.
Despite its own problems, Yemen also attracts thousands of Somali refugees each year, putting more strain on the economy.

QAEDA ATTACKS
The more unstable the ancestral home of Osama bin Laden, the more likely it is to attract the very al Qaeda militants that the United States wants its Yemeni ally to help keep at bay.
While the major strikes on U.S. and French ships in 2000 and 2002 have not been repeated, Yemen has seen a rise in smaller attacks on tourists, embassies and state offices.
Mortar shells fired at the U.S. embassy in March wounded 13 girls at a nearby school. A similar attack narrowly missed the Italian embassy in April. Both were claimed by al Qaeda.
"Al Qaeda in Yemen has already shown that it can rise from the ashes of defeat stronger and better organised," a report published in April by the Combating Terrorism Center at the U.S. Military Academy at West Point said.
"Washington must be realistic about what is and is not possible in Yemen... The previous carrot-and-stick approach is not a sustainable policy. Washington will have to put more money, not less, in... if it wants to prevent full collapse."
Over 20 detainees, including al Qaeda convicts, tunnelled out of jail in 2006 in an episode that troubled Washington.
"There has been some sort of gentleman's agreement here that al Qaeda not operate in Yemen and you had years where there was no attack on U.S. or European targets there," said Mustapha al-Ani, analyst at the Gulf Research Centre. "U.S. pressure to crack down on al Qaeda caused them problems."

ECONOMIC ISSUES
One of the world's poorest states, Yemen has seen discontent rise with the global price of food, most of which it imports.
So much land is used to grow qat, a popular narcotic, that food crops have been declining and water is running out while the 22 million population is growing by over 3 percent a year.
International donors have pledged billions of dollars to Yemen in return for vows to reform and end endemic corruption. Yet a largely rural populace sees little of the money.
In the south, anger over perceived northern depredations is imperilling President Ali Abdullah Saleh's main achievement -- the 1990 accord that unified north Yemen with the Marxist south.
"In the south, they started calling for rights but no one responded so when someone came up with the slogan 'right to self-determination' it had an electrifying effect on the populace," said Yemeni analyst Abdul-Ghani al-Iryani.
"The power elite still has the resources to reverse this trend. They need to engage society...There are several proposals for reform from inside the regime and out and they are valid."
Saleh, who was re-elected in 2006, has dealt with tough challenges before, crushing a 1994 bid for secession.
In a move billed as a step toward decentralisation, Yemen this month introduced local council polls to select provincial governors previously appointed by the central government.
But opposition groups boycotted the vote, saying they were not fairly represented on councils. Analysts say the poll showed that the state was still in control but that anger was growing.
Meanwhile, clashes in Saada linger. All sides are loath to couch them in terms of a sectarian war between majority Sunnis and Zaydis, whose sect is close to mainstream Sunni Islam.
The roots of the conflict lie at least partly in demands for more state services and less control, though some say Houthi wants a return to a form of clerical rule ended decades ago.
"Yemen as a failing state is not new. Yemen as an unstable state is not new. Yemen has hotspots... but Yemen survives," said Ani. (Editing by Sami Aboudi)