Yemen's Saleh defies crowds demanding his exit

SANAA (Reuters) - Huge crowds across Yemen demanded on Friday that President Ali Abdullah Saleh leave after months of unrest which has put the Arab world's poorest country on the brink of an economic meltdown.

But in a defiant speech to thousands of flag-waving supporters in the Yemeni capital, Saleh declared: "We will confront a challenge with a challenge."

Three people were killed and 15 wounded when troops shot at protesters in Ibb, a city south of Sanaa, medics and witnesses said. Demonstrators then set fire to an armoured troop carrier. Gunfire wounded three protesters in Yemen's third city, Taiz.

The latest killings pushed the overall death toll since protests began to at least 170.

Saleh, a wily political survivor, has clung to power despite defections from politicians, army officers and tribal leaders.

Armoured vehicles, troops and even military academy students with batons deployed in Sanaa to contain a sea of protesters stretching seven km (four miles) down a main street in Sanaa.

"We are steadfast, you leader of the corrupt," anti-Saleh demonstrators chanted. "Peaceful, peaceful, no to civil war."

Protesters in Sanaa, Ibb, Taiz and Hudaida held funeral processions for some of the 13 protesters killed on Wednesday, as tensions simmered after a spike in bloodshed in recent days.

In Sanaa, six coffins were taken to graves strewn with red roses. Some protesters held signs saying: "We won't be silent over this regime's crimes. The blood of martyrs is not cheap."

Saleh, addressing his supporters, denounced opponents as "saboteurs" and said the protesters, growing increasingly frustrated by their inability to dislodge him, should head to the ballot box if they wanted to unseat him.

"You are not using the same restraint (as we have). We don't cut roads, we don't cut gas lines in Maarib -- this is the property of the people," he said. "It is the people's wealth. They eat from it and drink from it. Stop playing with fire."

The president's remarks suggested serious high-level concern about pipeline sabotage and economic damage from the conflict, earlier highlighted by two government ministers.

'CATASTROPHE BEYOND IMAGINATION'

"If the problem persists, the government will be unable to meet the minimum needs of the citizens. The situation will pose a catastrophe beyond imagination," Oil Minister Amir al-Aidarous told parliament, according to the official news agency Saba.

Saba quoted Trade and Tourism Minister Hisham Sharaf as saying the unrest, which began in late January, had cost Yemen $5 billion, or about 17 percent of 2009 gross domestic product.

International alarm has mounted over instability in Yemen, home to an ambitious wing of al Qaeda, whose leader has sworn vengeance for the killing by U.S. forces of Osama bin Laden.

France's foreign ministry accused Saleh of dragging his feet on a Gulf Arab-mediated power transition plan he refused to sign in April.

"We call for an end to the violence and repression, we call for the president of Yemen to sign this agreement...and we call on all who have participated to remain engaged in the active search for a solution," spokesman Bernard Valero said.

Saleh offered a "constructive dialogue" with opposition parties, but did not promise to sign a Gulf Arab plan to which they have already agreed. Under the proposal, Saleh would step down in 30 days, rather than when his term ends in 2013.

The deal mediated by the six-nation Gulf Cooperation Council (GCC) had angered many of the youthful protesters because it would shield Saleh and his entourage from prosecution.

GCC member Qatar pulled out on Thursday, citing "stalling... continued escalation, and lack of wisdom."

Shadi Hamid, director of the Brookings Doha Centre, said Qatar's move would make little difference. "The GCC fell short. They were not able to persuade Saleh to give up power, so I think we're back at square one now," he told Reuters.

Tens of thousands of demonstrators tried to march on a presidential palace in the port city of Hudaida, but security forces blocked them, witnesses said. No clashes were reported.

In Mukalla, one of 10 southern cities swept by Friday protests, marchers demanded Saleh depart without negotiation.

Armed tribesmen killed three soldiers in an attack on an army vehicle. The soldiers were from a unit loyal to General Ali Mohsen, a kinsman of Saleh who has defected to the opposition.

Many tribesmen have also deserted Saleh. Thousands from the formidable Kholan tribe joined the demonstration in Sanaa on Friday. "We will stand with the opposition and support it until the regime leaves," Sheikh Bakil al-Sufi, their leader, told protesters. "Say it loudly: victory or death."

(Additional reporting by Mohammed Mukhashaf in Aden, Erika Solomon and Sara Anabtawi in Dubai and John Irish in Paris, writing by Alistair Lyon; editing by Ralph Boulton)