By Mohammed Ghobari and Mohammed Mukhashaf
SANAA/ADEN (Reuters) - A woman, a 10-year-old boy and a local al Qaeda leader were among at least 11 people killed alongside two Western hostages when U.S.-led forces battled militants in a failed rescue mission in Yemen, residents said on Sunday.
U.S. special forces raided the village of Dafaar in Shabwa province, a militant stronghold in southern Yemen, shortly after midnight on Saturday, killing several members of al Qaeda in the Arabian Peninsula (AQAP).
American journalist Luke Somers, 33, and South African teacher Pierre Korkie, 56, were shot and killed by their captors during the raid intended to secure the hostages' freedom, U.S. officials said.
AQAP, formed in 2006 by the merger of the Yemeni and Saudi branches of the network, has for years been seen by Washington as one of the movement's most dangerous branches.
Western governments fear an advance by Shi'ite Muslim Houthi fighters with links to Iran has bolstered support among Yemeni Sunnis for AQAP, which has established itself in parts of south and east Yemen, including Shabwa where the raid took place.
However, since Islamic State in Syria and Iraq began distributing films of its militants executing Western hostages, the focus on AQAP, which has traditionally used hostage-taking as a way to raise funds, had diminished until now.
At least one Briton and a Turkish man are still held by the group.
The Yemen-based group, loyal to the wider al Qaeda organization founded by the late Osama bin Laden, has denounced Islamic State, but Western and Gulf sources have said there may be operational connections between the two.
"AQAP and Daesh (Islamic State) are essentially the same organization but have different methods of execution and tactics," a senior Yemeni intelligence official said on the sidelines of a conference in Bahrain this weekend.
"They have killed hostages before, like the Yemeni special forces soldiers in Abyan in 2011. There are some AQAP cells that have pledged allegiance to the caliphate but there is division over the legitimacy of Daesh in its vision but not tactics."
Apart from the woman and the 10-year-old boy, reports on social media feeds of known militants said one of those killed was an AQAP commander and two members of the group. Six other people from the same southern Yemen tribe also died, the reports said, although they could not be immediately verified by Reuters.
The commander, identified as Jamal Mubarak al-Hard al-Daghari al-Awlaki, appeared to be the same person as Mubarak al-Harad, named in a Yemen Defence Ministry statement on Saturday as the leader of an AQAP group.
Several of those said by militants to have died were from the Daghari and Awlaki families, which are important tribes in Shabwa province. Yemen's government said on Saturday the hostages were being held in the house of a man named Saeed al-Daghari.
As special forces battled al Qaeda militants in a house belonging to the al-Daghari family, kidnappers in another building about 100 meters (300 ft) away shot and killed the two hostages, a local man who identified himself only as Jamal said.
Senior U.S. officials have said the raid was carried out by U.S. forces alone, but both Yemen's government and local residents said Yemeni forces also participated in the raid and engaged militants holding Somers and Korkie.
"Before the gunshots were heard, very strong floodlights turned the night into daylight, and then we heard loud explosions," Jamal told Reuters. "The soldiers were calling on the house inhabitants to surrender and the speaker was clearly a Yemeni soldier," he added.
Another witness, named Abdullah, said the Yemeni army had blocked access to the Wadi from all directions before the raid began.
"When the forces withdrew, we found lots of bloodstains, but did not know if those were of the soldiers or the hostages," Abdullah said.
U.S. Secretary of State John Kerry said the operation, the second attempt to free Somers in 10 days, had only been approved because of information that the American's life was in imminent danger.
However, the Gift of the Givers relief group, which was trying to secure Korkie's release, said it had negotiated for the teacher to be freed and had expected that to happen on Sunday and for him to be returned to his family.
Abdel-Razaq al-Jamal, a Yemeni journalist who specializes in covering Islamist militants, said AQAP may have originally intended to ransom Somers as well, but appeared to have been angered by the earlier failed rescue attempt on Nov. 25.
"I don't think this marks a change in position by al Qaeda," Jamal told Reuters. "It is clear that negotiations have preceded their threat to kill him," he said.
(Additional reporting by Yara Bayoumy in Manama; Writing by Sami Aboudi; Editing by Angus McDowall and Giles Elgood)