Fierce fighting in Sanaa between forces loyal to President Ali Abdullah Saleh and his tribal opponents has sent Yemen sliding rapidly toward civil war.

Street battles in the past 10 days have claimed at least 155 of more than 370 lives lost since popular protests demanding an end to Saleh's nearly 33 years in power erupted in January.

As fighting intensified, at least two shells hit the presidential palace on Friday, wounding two senior officials and the parliament speaker, Arab satellite TV channels reported.

The bloodshed has eclipsed a mostly peaceful pro-democracy movement inspired by successful revolts in Egypt and Tunisia.

The United States has stepped up pressure on Saleh to resign after the 69-year-old leader thrice reneged on Gulf-brokered proposals that offered him immunity from prosecution if he goes.

Even before protesters took to the streets, Saleh was struggling with a "Houthi" revolt in the north, separatist unrest in the south and a resurgent wing of al Qaeda.

Washington fears more chaos will benefit the Yemen-based al Qaeda in the Arabian Peninsula (AQAP), which claimed a foiled 2009 attempt to blow up a Detroit-bound airliner and bombs found in cargo en route to the United States in October 2010.

The mayhem in Yemen, which neighbors oil giant Saudi Arabia and vital shipping routes, raises risks for world oil supplies.

SWELLING OPPOSITION

Violence in the capital intensified sharply when Saleh again backed out of an agreement on a peaceful transition of power on May 22. Street battles erupted between Saleh loyalists and the Hashed tribal alliance led by Sadeq al-Ahmar.

Since then troops have also cracked down hard in the city of Taiz, a focus of anti-Saleh protests. Battles erupted in the southern town of Zinjibar after Islamist militants seized it.

Deteriorating security across the country prompted several embassies to close or withdraw diplomats.

Demonstrations, led by students and activists and fueled by crushing poverty and soaring unemployment, have gained steam since January, drawing in Islamists, southern separatists, tribal groups and the mainstream opposition parties.

The protesters are demanding the immediate exit of Saleh, whose term ends in 2013. After snipers killed 52 protesters in Sanaa on March 18, a top general, Ali Mohsen, declared support for the protesters and sent troops to protect them.

Saleh has long used patronage to keep the support of tribal and military forces, but his grip is slipping as revolt spreads, oil resources dwindle and foreign donors shun him.

Central government control, never very strong, is now absent or contested in many parts of Yemen.

WHAT TO WATCH:

- Possible civil war, economic devastation

- Further U.S. and Saudi pressure on Saleh to quit

- Possible humanitarian crisis as people flee fighting

AL QAEDA AND ISLAMIST MILITANCY

Washington and ally Saudi Arabia had seen Saleh as an important, if inconstant, partner in counter-terrorism efforts against AQAP, al Qaeda's most active and dynamic branch.

But the United States now appears to have concluded that Saleh has become a liability, even in the battle against AQAP because the upheaval caused by his refusal to quit has made it easier for militants to operate. Opponents of Saleh say he has turned U.S.-funded counter-terrorism units against protesters.

AQAP, which has scant appeal for most Yemenis, has barely featured in the anti-Saleh unrest, but has sought to exploit it.

Fierce fighting erupted in Zinjibar last month after AQAP and other Islamist militants seized it. Opposition leaders accused Saleh of deliberately letting the town, on the strategic Gulf of Aden, fall to al Qaeda to try to show the United States and Saudi Arabia how chaotic Yemen would be without him.

Yemen welcomed the killing of Osama bin Laden by U.S. forces in Pakistan in May, and Yemeni activists urged protesters not to raise banners of the slain al Qaeda leader to avoid triggering a harsher crackdown on pro-democracy demonstrations.

AQAP issued a eulogy of bin Laden, to whom it had declared allegiance. Three days after bin Laden's death, a U.S. drone strike in Yemen targeted Anwar al-Awlaki, a U.S.-born Yemeni cleric and AQAP propagandist. He escaped the attack.

AQAP, formed from the 2009 merger of the group's Yemeni and Saudi arms, narrowly failed to kill Saudi Arabia's security chief, Prince Mohammed bin Nayef, in August 2009.

Apart from its attempts to bomb U.S.-bound airliners, AQAP has vowed to bleed U.S. resources with small, cheap attacks that force the West to spend billions of dollars to guard against.

WHAT TO WATCH:

- More AQAP moves to fill gaps left by central authority

- Any AQAP retaliation for bin Laden's killing

SOUTHERN AND NORTHERN REVOLTS

The protests against Saleh have for now eclipsed earlier challenges to his rule by northern Shi'ite rebels and southern secessionists, who share the goal of toppling the president.

Their grievances, however, will pose a challenge for any post-Saleh government and failure to deal with them equitably could lead to further violence and instability.

North and South Yemen formally united under Saleh's leadership in 1990. But many southerners complain northerners have discriminated against them and usurped their resources -- most of Yemen's fast-declining oil reserves are in the south.

In the north, a ceasefire with Houthi Shi'ite rebels has mostly held since February 2010. The Saudi military intervened against the Houthis in November 2009 after border incidents.

The insurgents, who have fought the government on and off since 2004, have declared support for the anti-Saleh protesters.

WHAT TO WATCH:

- Any territorial fragmentation should Saleh fall

- How any post-Saleh government might woo north and south

DECLINING ECONOMY, RESOURCE CRUNCH

Yemen's prolonged turmoil has crippled the economy of the Arab world's poorest country. A third of its 23 million suffer chronic hunger, jobs are scarce and corruption is rife.

More than two-fifths of Yemenis lived on less than $2 a day even before widespread anti-Saleh protests erupted in January in a land facing what experts deem the world's worst water crisis.

Tribesmen blocking a road in Maareb province have severely disrupted cooking gas distribution, causing national shortages.

Crude output has declined steadily in Yemen, sinking to 298,000 barrels per day in 2009, from a peak of 457,000 bpd in 2002, according to BP.

Exports of liquefied natural gas began in 2009 and capacity is due to reach 8.28 billion cubic metres a year by end-2011.

Government economic concessions announced this year to calm popular discontent will cost Yemen about 3.5 percent of gross domestic product, according to the International Monetary Fund.

Before the recent turmoil, the IMF forecast growth of 3.4 percent this year, a return to more usual levels after 8 percent last year, a spurt linked to LNG exports coming onstream.

WHAT TO WATCH:

- Further disruption to oil and gas activities

- Any signs of the central government running out of cash