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* Air strike kills two Qaeda militants in south

* Insurgents fighting back, staged recent attacks

By Mohammed Ghobari

SANAA, Aug 7 (Reuters) – Yemen’s president ordered the

restructuring of some military units on Monday, aiming to curb

the powers of a son of former leader Ali Abdullah Saleh and

stabilise a country where Saleh’s legacy still looms large.

The move coincided with an air strike that killed two

suspected militants linked to al Qaeda, still a major threat to

Yemen despite being driven out of its main southern strongholds

by a U.S.-backed military offensive in June.

State-owned news agency Saba said late on Monday that

President Abd-Rabbu Mansour Hadi issued decrees transferring the

command of some Republican Guards’ units to a newly formed force

called the Presidential Protective Forces under his authority.

Other units from the elite Republican Guards, which is led

by Brigadier General Ahmed Ali Abdullah Saleh, the

ex-president’s son, were placed under different regional

command.

Lawlessness in Yemen has alarmed the United States and top

world oil exporter Saudi Arabia, which increasingly view the

impoverished Arab state as a frontline in their war on al Qaeda

and its affiliates.

The president’s decrees also incorporated some army units

led by dissident General Ali Mohsen al-Ahmar, who broke away

from Saleh’s forces after the protests began last year, into the

new presidential force or under regional command.

Ahmar welcomed the decrees and called them “brave and

patriotic decisions”, Saba said, adding that the moves restore

unity to the armed forces and improve discipline.

Hadi, who had served as Saleh’s deputy, took power in

February after standing as the only candidate in a presidential

election. His election came as part of a deal brokered by

Yemen’s Gulf neighbours to end the political upheaval.

The president has vowed to unify the army, which is divided

between Saleh’s allies and foes. In April, he removed about 20

top commanders, including a half brother of Saleh and other

relatives.

Yemen’s northern neighbour, Saudi Arabia, and the United

States both backed the power transition deal, partly due to

concerns over the expansion of al-Qaeda’ s regional wing in a

country next to major oil shipping lanes.

Washington, which has pursued a campaign of assassination by

drone and missile against alleged al Qaeda targets in Yemen, has

backed a military offensive in May to recapture swaths of land

seized by insurgents in the southern Abyan province last year.

AIR STRIKE

The army campaign was hailed as a major victory after the

area was “liberated” from Islamist fighters in June. But

residents and analysts say the militants are simply lying low

and waiting for a chance to regroup.

A local official in the southern province of al-Baydah said

on Tuesday an air strike killed two senior al Qaeda fighters

overnight.

The official said the strike targetted a vehicle used by the

militants in the city of Rada’a. A tribal source told Reuters

the attack was likely by a U.S. drone.

Despite losing their territorial base, militants have since

shown their clout remains formidable, staging a series of

bombings and assassinations and attacking a southern village to

regain control of territory for the first time since they were

driven out.

On Sunday, a suicide bomber struck at a wake in the southern

city of Jaar, killing at least 45 people, in the deadliest

attack since the army declared victory in June.

In June, the commander of military forces in southern Yemen,

Major General Salem Ali Qatan, was killed by a suicide bomber in

the port city of Aden.

(Reporting by Mohammed Ghobari; Writing by Rania El Gamal;

Editing by Sami Aboudi and Roger Atwood)