By Mohammed Ghobari
SANAA (Reuters) - Yemen's president has made a new offer to protesters demanding his ouster, proposing he stays in office until elections are held but transferring his powers to a caretaker government, an opposition source said on Wednesday.
The opposition promptly rejected the offer, with a spokesman calling it "an attempt to prolong the survival of regime."
Ali Abdullah Saleh made his offer at a meeting on Tuesday night with Mohammed al-Yadoumi, head of the Islamist Islah party. It was the first time Saleh had dealt with Islah, once a partner in his government, an opposition spokesmen said.
Weeks of protests in Sanaa and other cities have brought Saleh's 32-year rule to the brink of collapse, but the United States and Saudi Arabia, a key financial backer of impoverished Yemen, are worried over who could succeed their ally.
They have long regarded Saleh as a bulwark of stability who can keep al Qaeda from extending its foothold in an Arabian Peninsula country that many see as close to disintegration.
Yemen's al Qaeda wing claimed responsibility for a foiled attempt in late 2009 to blow up an airliner bound for Detroit, and for U.S.-bound cargo bombs sent in October 2010.
Al Qaeda preacher Anwar al-Awlaki, a top figure in the group's wing in Yemen, welcomed revolts across the Arab world which he said would give Islamists greater scope to speak out.
U.S. officials have said they like working with Saleh -- who has allowed unpopular U.S. air strikes in Yemen against al Qaeda -- and Saleh has said the U.S. ambassador in Sanaa is involved in talks to find a solution.
Any agreement between Saleh and the parties could run into trouble from another force -- the protesters.
Groups calling themselves the Youth Revolution said on Wednesday they would not end a sit-in near Sanaa University until Saleh and his allies are removed from power.
"A temporary presidential council of five individuals known for experience and integrity should run the country for an interim period (of six months)," they said, adding the council should appoint a technocrat to form a caretaker government.
It also called for corruption trials, return of "stolen public and private property," release of political detainees, dissolving state security forces and closing the information ministry -- steps taken in Tunisia and Egypt after similar pro-democracy uprisings had removed entrenched leaders.
They called for dialogue over the complaints of northern Shi'ites and southerners who lean toward secession.
ISLAH LURES WASHINGTON
Sheikh Hamid al-Ahmar, a key tribal figure who belongs to the Islah party, told Reuters on Tuesday Islah and the opposition could handle the militant issue better than Saleh, whose government he said was not serious in confronting them.
"I think Yemenis would be capable of freeing Yemen of terror within months," Ahmar said, adding that the United States and European countries should call directly for Saleh's departure.
"We don't need that much support. But support like what was done in Egypt would be enough to finish things," he said.
Opponents suspect incidents of lax security over the past week are government ploys to show to foreign powers that Saleh is the strongman who can hold the impoverished country together.
Islamists took control of a town in the central province of Abyan after government security deserted it, and the governors of Saada and Jawf provinces in the north also quit, prompting "popular committees" who back the protest movement to step in.
The opposition says Saleh is to blame for the presence of militants, including al Qaeda, in the Abyan city of Jaar, where an explosion at a bullet factory killed 140 people on Monday.
A perennial survivor of civil wars and militancy, Saleh has said Yemen could drift into armed conflict and fragment along regional and tribal lines if he leaves office immediately.
Saleh, who has been alternately conciliatory and defiant, has vowed in public to make no more concessions to opponents.
But talks have been going on behind the scenes for days.
This week, Saleh's ruling party proposed a new government to activate his earlier offers of a new constitution ahead of early parliamentary and presidential elections. He said in February he would not run for re-election when his term expires in 2013.
The opposition says it believes Saleh is maneuvering to avoid limits on his family's future political activities and secure a guarantee they will not be prosecuted for corruption.
As protests continued, the U.S. embassy advised caution.
"The U.S. Embassy urges U.S. citizens in Sanaa to limit their movements this weekend, and to avoid areas where demonstrations or confrontations are likely," its website said.
(Additional reporting by Mohamed Sudam in Sanaa; writing by Andrew Hammond; editing by Andrew Roche)