By Mohammed Ghobari and Yara Bayoumy
SANAA (Reuters) - When Yemen's Houthi fighters scaled the rooftops surrounding former president Abd-Rabbu Mansour Hadi's home, killed his guards and put him under house arrest, they left no doubt that negotiating a political settlement with them would be difficult.
The actions of the Shi'ite Muslim fighters have drawn criticism from across Yemen's political spectrum, especially after their declaration on Friday that they were dismissing the national assembly and would form a new government.
The move, condemned by Washington and Gulf Arabs, has added to fears in the United States and neighboring oil giant Saudi Arabia that Yemen, which is home to an active al Qaeda wing, is on the verge of becoming a failed state.
Even after the United Nations managed to bring political factions to the negotiating table again, two parties walked out, complaining of threats from the Houthis.
"The problem isn't in selecting a new president ... but it's tied to the militias' control of the capital and on decision-making," said Abdullah Noman, secretary general of the leftist Nasserist party.
"So any new president will be at the mercy of these militias who are still holding Hadi, the prime minister and a number of officials under house arrest," he added.
Indeed when the 69-year-old president assumed office after Arab Spring protests ousted his predecessor, he never would have guessed that two years later he would be under control of rebels who had overrun Sanaa and became Yemen's new de factor rulers.
Hadi tried to accommodate the rebels even after they took over the capital in September, but the crisis reached a critical point in mid-January that began with battles at the presidential palace and brought Hadi's resignation.
The Houthis began as a revivalist group for Yemen's Zaydi Shi'ite Muslim sect in the north, before morphing over the past decade into a revolutionary movement with national ambitions, and an ally of Iran.
In a lightning push through northern Yemen and into Sanaa last year, the group took advantage of splits in the ruling and tribal elite and of widespread anger at years of government malfeasance.
They portrayed their move as a "people's revolution" against corruption which they say was emptying state coffers. Their decision to dissolve parliament and set up an interim government was denounced as a coup by one political faction.
Reuters spoke to sources close to Hadi to draw a picture of what led Hadi to leave office.
On Jan. 18, the security committee met and Yemeni Defence Minister Mahmoud al-Subaihi decided to set up checkpoints in the capital, according to a Western source close to the events.
The Houthis had already set up their own checkpoints around security and government institutions in Sanaa. Al Qaeda attacks were increasing and the Houthis' arrest of the president's chief of staff, Ahmed bin Mubarak, had raised tensions.
Subaihi sought to reassure a Houthi representative at the meeting about the government checkpoints, saying: "This is not against the Houthis, it's our joint effort against al Qaeda," according to the Western source.
The argument didn't work. Fighting started shortly after the first government checkpoints appeared.
On Jan. 19, the Houthis had besieged the presidential palace and surrounded the prime minister's residence. A day later a gunbattle raged at Hadi's residential compound, where he was at the time.
"We never expected that the Houthis would attack the president's house, because the confrontations were at the palace. And suddenly at midday, snipers began targeting the presidential home's guards from all directions," a source close to Hadi told Reuters.
"We were at home and the guards started confronting the intense attack, but the Houthis were very highly trained. They scaled the rooftops of the surrounding homes and other heights and rained bullets on the house," said the source.
The Houthis killed 11 of Hadi's bodyguards, the sources said.
"First two were killed, then three, until the number reached 11 killed in front of our eyes inside the house and the president watched these guards, many of whom are his relatives and from his area, killed," said the source close to Hadi.
A Houthi official said at the time the fighting at Hadi's home was the result of a "provocation" by Hadi's security.
After two days of fighting, Hadi signed a deal with the Houthis that called for them to withdraw from areas they had captured in the last two days and to release bin Mubarak, the president's chief of staff. The deal also gave the Houthis numerous concessions.
But by Thursday evening, Prime Minister Khaled Bahah and his cabinet resigned. Subaihi, though, has since accepted the Houthis' offer to carry out a defense minister's duties.
"(It was) clear that his (Bahah's) government could no longer operate when they were under house arrest and the Houthis had taken over their ministries," said the Western source.
The Houthis also did not honor their side of the deal -- their gunmen were still surrounding the presidential palace, Hadi and his ministers were under house arrest and bin Mubarak was not released.
They say they are providing "protection" for the president.
"Despite what happened, the president was keen not to push the country towards war ... but the Houthis came to the president's home at sunset ... and insisted that he issue a decree making Houthi presidential adviser Saleh al-Sammad vice president by a 9 pm deadline," the source close to Hadi said.
The Houthis' demands included appointing deputies in ministries and ambassadorial positions in Iran, China and Russia.
"Hadi then resigned. They backtracked on their other demands and said we just want the vice presidency, but Hadi said the ink is dry," the Western source said.
(Writing by Yara Bayoumy; Editing by Angus McDowall and Giles Elgood)