SANAA (Reuters) - Yemeni President Ali Abdullah Saleh was slightly injured in a shelling attack on his palace on Friday as fighting intensified in the capital of the impoverished country.
Saleh, who is facing an unprecedented challenge to nearly 33 years of rule, said seven people were killed when a mosque in the presidential palace was shelled by his tribal foes.
"I salute our armed forces and the security forces for standing up firmly to confront this challenge by an outlaw gang that has nothing to do with the so-called youth revolution," said Saleh, speaking only via audio in a televised speech.
The deputy information minister said earlier that Saleh, 69, had suffered minor injuries in the attack but was in "good health".
A senior diplomat said the prime minister, his deputy, the parliament speaker and other aides were hurt in the attack.
Global powers are worried that Yemen, home to a wing of militant group al Qaeda known as AQAP and bordering the world's biggest oil exporter Saudi Arabia, could become a failed state raising risks for world oil supplies.
Yemen has tipped swiftly towards civil war this week, with Hashed tribesmen battling Saleh forces in Sanaa.
More than 370 people have been killed, at least 155 of them in the last 10 days, since a popular uprising began in January against Saleh's long rule.
On Friday, fierce fighting engulfed the capital, where residents cowered in their homes as explosions rocked the city.
"A cowardly attack with an explosive projectile took place during Friday prayers at the presidential palace mosque where ... Saleh and senior government officials were present," state news agency Saba said.
The government blamed the shelling on Hashed tribesmen led by Sadeq al-Ahmar, whose family has backed those demanding Saleh's overthrow. Ahmar later denied responsibility and accused Saleh himself of orchestrating the attack to justify a government escalation of street fighting in the capital.
Suspicion has also fallen on breakaway General Ali Mohsen, who defected to the opposition in April and sent his troops to the capital to protect anti-Saleh demonstrators.
Forces loyal to Saleh later shelled the homes of the leaders of the Hashed tribal federation, security sources said.
The United States condemned the escalating violence and called for an orderly and peaceful transfer of power.
Saleh has exasperated his former U.S. and Saudi allies who had once seen him as a key partner in efforts to combat al Qaeda in the Arabian Peninsula (AQAP).
Defying world pressure, Saleh has thrice reneged on a deal brokered by Gulf states for him to quit in return for immunity from prosecution, even as he haemorrhages support at home.
The secretary-general of the Saudi-led Gulf Cooperation Council (GCC) urged all parties in Yemen to end the fighting.
EU foreign affairs chief Catherine Ashton deplored the loss of life and said the European Union would help EU citizens wishing to leave Yemen. "I have repeatedly urged President Saleh to listen to the demands of the Yemeni people and transfer power," she added.
Yemen's increasingly bloody struggle looks sure to go on as long as Saleh refuses to step down and it will complicate the already formidable challenge of uniting the country and rebuilding shattered state institutions in any post-Saleh era.
"The dangers a collapsed Yemen poses for the region are too horrendous to contemplate," said Ghanem Nuseibeh, founder of Cornerstone Global Associates and senior analyst at Political Capital. "Although the border with Saudi Arabia is more secure than in recent years, it is still a relatively porous border.
"The consequences will be on the security front, as well as economic. AQAP in particular will find comfort in a failed Yemen, and threaten the rest of the GCC and (this) will have implications for piracy across the Gulf of Aden," he said.
Before the attack on the palace, protesters paraded the coffins of 50 people it said had been killed by Saleh's forces since a ceasefire fell apart this week.
Heavy fighting spread for the first time to southern Sanaa, held by Saleh loyalists battling disaffected military units and tribesmen in the north. Thousands of civilians have fled.
Explosions were also heard in the southern city of Taiz, where the United Nations has said it is investigating reports that 50 people have been killed since Sunday.
Three policemen were killed by a rocket-propelled grenade attack in Taiz and 28 were wounded in clashes with protesters, sources at a military hospital said. Two protesters were killed and 30 wounded, sources at the city's al-Thawra hospital said.
The bloodshed has eclipsed a mostly peaceful pro-democracy movement inspired by successful revolts in Egypt and Tunisia.
One constant factor is Yemen's crippling poverty. Jobs and food are scarce, corruption is rampant and two-fifths of the 23 million people struggle to live on less than $2 a day.
"Economic migrants will also pose a challenge for the region. We are getting very close to an irreversible situation," Nuseibeh said. Tribes might start fighting among themselves, especially those close to the Saudis and those which are not.
"The danger is that this civil war is not along north-south lines but more internalised, within regions. When the conflict turns tribal, as well as nationalistic along the former north-south borders, it becomes very difficult to stop."
(Additional reporting by Mohammed al-Ramahi in Sanaa, Mohammed Mukhashaf in Aden, Khaled al-Mahdi in Taiz, Mahmoud Habboush and Jon Herskovitz in Dubai and Samia Nakhoul in London; Writing by Alistair Lyon; Editing by Tim Pearce)