By Mohammed Ghobari
SANAA (Reuters) - Yemen's President dismissed his government on Tuesday, proposed a national unity administration and suggested reinstating fuel subsidies, government sources said, in a bid to quell weeks of protests by a Shi'te Muslim rebel group.
But the Houthi group, which had massed tens of thousands of supporters in the capital Sanaa with camps set up near the Interior Ministry, rejected the compromise proposals by President Abd-Rabbu Mansour Hadi.
The impasse raises concern about further instability in Yemen, an impoverished Arabian Peninsula country that borders oil exporting power Saudi Arabia, and which is also struggling with a stubborn al Qaeda insurgency and southern secessionists.
The Houthis, demanding that the government resign and subsidies be fully restored, have been fighting for years for more power for their Zaydi sect in north Yemen.
Government sources told Reuters Hadi had dismissed his government, suggested a national unity administration and planned to reduce petrol and diesel prices by 30 percent, backtracking on unpopular cuts to fuel subsidies which had drained Yemeni coffers but buoyed the country's poor citizens.
A government source said implementation of the initiative depended on the Houthis' acceptance.
Mohammed Abdulsalam, a spokesman for Houthi leader Abdulmalek al-Houthi, said in a statement on his Facebook page:
"We do not agree to it. Our position is still that we (stand) by the Yemeni people who have gone out in a blessed popular revolution to demand their legitimate and just rights."
With their rejection, it is unclear what the government's next move will be. However, Hadi, in a speech before the meeting where the proposal was signed, suggested his patience was running out.
"I affirm that I will deal decisively with all attempts to shake security and carry out division," he said in remarks on the state Saba news agency.
Security and political turmoil have mounted in Yemen since Arab spring protests ousted veteran autocrat Ali Abdullah Saleh and Hadi took his place in a complex deal mediated by the United Nations, Gulf neighbours and the United States.
The U.S. and regional powerhouse Saudi Arabia fear the rapid growth of Al Qaeda in Yemen following the unrest and are keen to avoid a spread to the majority Sunni Muslim state of sectarian violence in the region.
In a copy of Hadi's initiative seen by Reuters, the president plans a minimum wage hike and the allotment of ministerial posts to the Houthis and other constituencies while retaining the right to the key portfolios of finance, foreign affairs, defence and the interior.
(Reporting By Mohammed Ghobari; Writing by Yara Bayoumy and Noah Browning; Editing by William Maclean and ... .....)
