Rising al Qaeda militancy, surging violence in a secessionist-leaning south and crushing poverty are among the myriad challenges facing Yemen, neighbour to top oil exporter Saudi Arabia.
Yemen, also trying to cement a truce to end a northern civil war, has been a major Western security concern since a Yemen-based regional arm of al Qaeda claimed responsibility for a failed attempt to bomb a U.S.-bound airliner in December.
Worries over instability and widespread corruption have deterred significant foreign investment beyond the oil industry, constraining growth and exacerbating unemployment.
Nearly a third of the workforce is out of a job. More than 40 percent of Yemen's 23 million people live on under $2 a day.
AL QAEDA AND ISLAMIC MILITANCY
Clashes between al Qaeda and security forces are on the rise as the group steps up attacks on foreign and domestic targets.
Since June, militants have attacked several state targets in the south, including a raid on an intelligence headquarters in the port city of Aden, in which 11 people were killed.
The ill-equipped security forces are easier to strike than many Western targets, and al Qaeda may hope to exploit anti-government sentiment in the south, home to a strong and growing separatist movement.
Western powers and Saudi Arabia have long feared al Qaeda wants to turn Yemen into a launchpad for attacks in the region and beyond. The December plane attack set off more alarm bells.
Sanaa subsequently declared war on al Qaeda, and Washington stepped up training, intelligence and military aid to Yemeni forces, helping them stage deadly raids on suspected militant hideouts, some of which have also killed civilians. Dozens of suspected militants have been captured in the past month.
But an assassination attempt against the British ambassador in April and the assault on the intelligence agency in Aden in June raised doubts about whether the state campaign was working.
The government has combated al Qaeda on and off since before Sept. 11, 2001 attacks on the United States, often in concert with Washington, but its approach to dealing with militants has come under fire in the West as half-hearted and ineffective.
Al Qaeda activity picked up in 2009 after the group's Saudi wing, hit hard by a crackdown in the kingdom, merged with the Yemeni arm to create a Yemen-based regional organisation.
The leaders of Al Qaeda in the Arabian Peninsula include Nasser al-Wahayshi, once a close associate of Osama bin Laden. Its declared aim is to target Westerners in the oil-exporting Gulf region and bring down the Saudi royal family.
In August 2009, an al Qaeda suicide bomber tried to kill Prince Mohammed bin Nayef, Saudi Arabia's anti-terror chief.
What to watch:
- More attacks on international and domestic targets
- Public backlash against foreign role in fighting al Qaeda
Mounting violence in the south, from separatist ambushes to battles with security forces, has raised fears of a sustained insurgency in what was once a Soviet-backed, socialist state.
North and south formally united in 1990 but some in the south, home to many of Yemen's oil facilities, say northerners have since seized resources and discriminated against them.
Many southerners complain the government deprives them of jobs and usurps their land. Key positions in the south often go to Sanaa loyalists, many of them of northern origin.
The north tightened its grip after a brief 1994 civil war in which a secession attempt by southern leaders was crushed.
President Ali Abdullah Saleh has offered dialogue with the opposition, including southerners, but security campaigns to curb unrest in the south have only intensified grievances there.
Suspected separatists have attacked state vehicles. The army has surrounded and shelled the flashpoint southern town of Dalea. Troops frequently clash with separatist protesters.
Both sides trade blame for the violence in a heavily armed society where state control is weak.
Separatists say their movement is peaceful. The government condemns armed separatists as minority of outlaws who target northerners indiscriminately and sometimes brutally.
What to watch:
- Spiralling violence as more southerners take up arms
- Poverty and unemployment may fuel any insurgency
CONFLICT WITH NORTHERN SHI'ITE REBELS
Yemen is working to cement an increasingly shaky truce with northern Shi'ite rebels sealed in February to end a civil war that has raged on and off since 2004. Saudi Arabia intervened militarily last year after rebels seized some Saudi land.
The rebels, who belong to the minority Zaydi sect of Shi'ite Islam and who are known as Houthis after their leaders' clan, complain of religious and socio-economic discrimination.
The ceasefire, along with prisoner releases by both sides, has halted major combat, but sporadic violence persists.
In August, the government and the Houthis signed a Qatari-mediated deal to start a dialogue to end the conflict. But previous truces in a war that has displaced 350,000 people have not endured, and no lasting peace is yet in sight.
What to watch:
- Sporadic violence may deteriorate to full-blown conflict
- Rebels regroup and restart their campaign
DECLINING ECONOMY, RESOURCE CRUNCH
Almost a third of Yemenis suffer chronic hunger, jobs are scarce, corruption is rife and oil and water resources are drying up, further straining the economy.
The government, increasingly strapped for cash as oil revenues decline steeply, is almost powerless to meet the needs of its expanding population and there are fears that if the state cannot pay public sector wages Yemen may tip into chaos.
The Yemeni rial has tumbled to record lows this year, forcing the central bank to inject more than $850 million to support the currency, which has since strengthened.
Despite some Western and Saudi aid, donor money is hard to come by and slow to reach the neediest. Only a fraction of the $4.7 billion pledged at a 2006 conference has been disbursed.
As part of badly needed economic reforms, Yemen has begun cautiously reducing fuel subsidies, a huge burden on state finances. Previous attempts to raise fuel prices provoked riots.
Yemen also faces a water crisis, deemed among the worst in the world and aggravated by excessive irrigation to grow qat, a mild narcotic leaf chewed by most Yemenis.