(Reuters) - President Ali Abdullah Saleh returned to Yemen as abruptly as he left, and whether he plans to effect a transfer of power or stamp out protests, his country is a tinderbox edging toward civil war.
Protests have simmered for three months as Yemen was mired in political limbo while Saleh recovered in Saudi Arabia from an assassination attempt in June, which burned his hands and arms and drove wooden shards into his torso.
But the protesters' attempts to escalate protests last week set off fierce fighting between loyalist troops and former Saleh forces that claim to support the opposition.
The clashes left some 100 protesters dead, and Saleh -- sensing an opportunity -- slipped back in the middle of the night, unbeknownst to all but a few security guards.
"This is an ominous sign, returning at a time like this probably signals he intends to use violence to resolve this. This is dangerous," said Abdulghani al-Iryani, a political analyst and co-founder of the Democratic Awakening Movement.
For five days, bursts of explosions have echoed wildly through this crumbling capital nestled among craggy mountains.
The fear of snipers lurking on rooftops has left protesters, camped out for months on a 4-km (2.5-mile) stretch they have renamed "Change Square," and terrified residents feeling trapped.
The worst-case scenario is that hardliners in Saleh's ruling party, emboldened by his return, will refuse to go back to the negotiating table, allowing the prospect of civil war to remain.
"His people will feel that they are in a stronger position and they will refuse to compromise. Basically this means the political process is dead in the water," Iryani said.
A political survivor who has ruled the chaotic Arabian Peninsula country for 33 years, Saleh called for a ceasefire upon his return so that talks can be held, even though he has backed out three times from a power transfer agreement.
"It is not a new tactic," said Yemen scholar Gregory Johnsen of Princeton University, who sees Saleh's move as a chance to act as a solidarity figure with the goal of regaining a grip on power.
"He saw a deteriorating, bloody situation and saw opportunity to swoop in as a national figure that brings the country together, he did this in 1990s and in 2006 and I think he's trying to do it again."
But with conditions so tense in Sanaa, the technique could backfire: "He comes back at the exact worst moment, this is likely to exacerbate the situation."
His unannounced return prompted even his formerly close ally, the United States, to urge him to step down, arrange a full transfer of power and allow Yemen to "move on."
"The Yemeni people have suffered enough and deserve a path toward a better future," White House spokesman Jay Carney said in New York.
Another scenario is that Saleh was allowed to return by Saudi leaders, who have long bankrolled Saleh to help stamp out an active wing of al Qaeda in Yemen, so that he could eventually transfer power to those who would continue to cooperate with Saudi Arabia.
"If there wasn't anything for them (the Saudis) they wouldn't have let him go," said Ghanem Nuseibeh, an analyst and partner at Cornerstone Global consultants in London.
Oil giant Saudi Arabia, which shares a porous, 1,460-km border with Yemen, has been a key player in its neighbor's affairs for decades and is keen to ensure stability to keep al Qaeda at bay.
Riyadh spearheaded a regional Gulf initiative for a power transfer in Yemen. Diplomats who have been in Sanaa trying to hammer out a political resolution to stem bloodshed were shocked by Saleh's return but said there could be a silver lining.
"If he means to negotiate, the hope is that direct talks allow for less confusion and less gatekeepers getting in the way who block the chance of political progress," one negotiator said. "There could be good news in this.
Opposition leader Mohammed al-Mutawakil seconded that view, saying: "I am optimistic about his return, maybe it will be to bring the situation into check and sign the Gulf initiative. ...I do not think this is an escalation."
What most agree on is that the eight-month long revolt in Yemen has reached a critical juncture. Asked what Saleh's return
meant, one Riyadh-based diplomat said simply: "It's really bad."
If Saleh clings to power, all-out war could follow and plunge the country into a chaotic battle between tribal factions of rebels in the north, separatists in the south and al Qaeda militants moving in to exploit mayhem.
In Sanaa alone, a three-way standoff must be resolved. Saleh's son, Ahmed Ali Saleh, who controls the Revolutionary Guard, is seen as reluctant to allow his family to relinquish power.
Sadeq al-Ahmar, the powerful chief of the Hashed tribal federation, has sided with protesters and his heavily armed tribesmen are clashing with security forces so fiercely that their shelling has sent residents in his neighborhood underground.
Diplomats believe he and his brother, business tycoon Hamid al-Ahmar, feel sidelined by the political talks and fear losing their share of Yemen's wealth.
Meanwhile, defected general Ali Mohsen, whose swing to the protesters was seen as a heavy blow to Saleh, is suspected of engaging in clashes with state troops last week, perhaps out of frustration that political talks diminished his role as Yemen's kingmaker.
Whoever prevails will have to satisfy the demands of tens of thousands of protesters, who have paralyzed a central part of Sanaa and vow to remain camped out in Change Square despite the bloodshed until they believe all signs of the regime are gone.
Many are fed up with grinding poverty, where two out of every three live on less than $2 per day and half the population owns guns. Oil wealth is dwindling and water is diminishing so quickly many expect Sanaa to be the world's first dry capital.
On Friday, as thousands of pro-government Yemenis set off fireworks and played songs in the streets, the thousands of protesters camped in Change Square expressed a sense of bewilderment at what was to come, and about Saleh's return.
"I'm just so surprised," said one of Mohsen's troops, sitting among the protesters, a rifle slung over his shoulder. "But I guess if he fires, we'll have to respond."
(Additional reporting by Angus McDowall and Isabel Coles in Dubai; Editing by Samia Nakhoul and Michael Roddy)