The president’s new mosque shimmers over this ancient city like an illusion of stability against images of MIG fighter jets screeching overhead toward rebellion in the north or the latest news of pirates seizing ships in the treacherous Gulf of Aden.

In Sana’s snug alleys, men speak of war, secession and Al Qaeda, which is busy scouring schoolyards and mosques for new recruits while much of the population spends hours each day getting a mellow buzz from chewing khat leaves.

If Yemen were a theater, which sometimes it appears to be, it would be an unnerving place of trapdoors and shifting facades. This is the poorest nation in the Arab world and one of the most strategically located, with 3 million barrels of oil sailing daily past its shores, tucked between Saudi Arabia and Somalia.

And it is a teetering mess that some in Washington fear could draw the U.S. into a conflict with extremists at the intersection of the Middle East and the lawless Horn of Africa.

“We are a failed state,” said Abubakr A. Badeeb, a leading member of the opposition Socialist Party. “Yemen can no longer protect the rights of its citizens.”

Others regard the country as a “failing” state, and the tricky thing about Yemen is parsing fact from fiction. Every scenario has a counter-narrative; every surface pulses with a beguiling underside. Is Al Qaeda a grave threat, or is its strength exaggerated by a government that needs U.S. attention and billions of dollars in aid from Persian Gulf nations? Is the war in the north a rebellion by a disaffected sect, or is it turning into a perilous proxy battle between Saudi Arabia and Iran, with the Saudis already launching military strikes across the border?

Yemeni President Ali Abdullah Saleh for almost 20 years has balanced conflicting tribal and sectarian voices, but his government’s grip is slipping.

FOR THE RECORD: An earlier version of the online headline for this article referred to Yemen as “tiny,” which is an incorrect characterization of the nation.

Al Qaeda’s aim is to exploit the economic crisis and domestic turmoil, overthrow the government and build a base for attacks across the region, Western and Yemeni intelligence officials say. Worried about terrorism and protecting oil supplies, the U.S. is working on a military cooperation pact with Yemen that includes training Yemeni special forces.

“Al Qaeda in the past focused on bombings and suicide attacks, but now it is also able to target security forces,” said Saeed Ali O. Jemhi, an expert on terrorist groups in Yemen. “They have sympathizers and agents within the Yemeni security and intelligence forces. Al Qaeda is in a renewing stage, and its aim is to spread an Islamic caliphate across the Arabian Peninsula.”

Washington’s concern about Yemen has intensified since 2000, when militants slammed a motorboat packed with explosives into the U.S. destroyer Cole in the port of Aden, killing 17 sailors. The U.S. Embassy here in Sana, the capital, was attacked in 2008, leaving 19 dead, including a U.S. citizen.

But non-military U.S. aid to Yemen has remained modest; this year totaling $24 million, up from $9.3 million the previous year. The Obama administration has requested about $65 million in counter-terrorism and military assistance.

It’s a discomfiting task to choose Yemen’s most pressing problem. Corruption is rampant, unemployment is 35%, child malnutrition is rising, water shortages are severe and oil reserves are shrinking.

It says something about a country’s priorities that most of its dwindling water supply goes to irrigating khat, whose bitter-tasting leaves have for generations kept Yemenis in a sedated haze.

“Owing to the central government’s historically weak control, the country has often been on the brink of chaos,” said Christopher Boucek, an analyst with the Carnegie Center for International Peace. “Yemen has survived individual challenges in the past, but what differentiates the situation today is that multiple interconnected challenges are poised to converge at the same time.”

The secessionist movement in the south threatens to split the country, but bombs and a surge of more than 175,000 people fleeing the war in the northwest is the consuming topic these days. There, Houthi rebels, Shiites of the Zaidi sect that had ruled for centuries, are battling Yemeni and Saudi forces along a border that stretches to the shipping lanes of the Red Sea.

The fighting, which began in August when the government launched Operation Scorched Earth, is the latest in a sporadic five-year insurgency. The Houthis say they are persecuted and marginalized, and they condemn Saleh, who is also a Zaidi, for being influenced by Sunni Wahhabi ideology from Saudi Arabia. The conflict, however, is rooted less in religion than in government failures and historical animosities in a mountainous region controlled by clans and tribes.

“The government hasn’t offered jobs, education or development,” said Mohammed Sabri, a political analyst. “The government thinks the war is a way to keep it in power. But they’ve chosen the wrong time and wrong place, and given the nation’s circumstances, the war is spinning out of their control and they’re trying to turn this businessmen’s war into a proxy war.”

The Shiite and Sunni sectarian overtones have given the hostilities wider regional implications.

The government says the Houthis are supported by Shiite-majority Iran. Tehran has denied the charges and the Yemeni regime has offered no credible evidence to back its assertions. Saudi Arabia joined the war in early November after cross-border raids by Houthis.

Riyadh fears two scenarios: The uprising will inspire unrest among the country’s persecuted Shiite minority near its eastern oil fields, and that it will create a porous border for Al Qaeda militants to enter the kingdom to attack oil depots and government institutions.

A Saudi militant based in Yemen slipped into the kingdom in August and blew himself up at a palace reception. Saudia Arabia’s top counter-terrorism official, Muhammad bin Nayef, a member of the royal family, was injured. The attack reaffirmed to the kingdom, Yemen’s biggest aid donor, that its southern neighbor was too strategically important to let it spiral into anarchy.

Politicians and clerics in Saudi Arabia and Iran have traded scathing rhetoric over Yemen, but so far the countries have avoided increasing military tensions. The kingdom is suspicious of Iran’s ambitions, nuclear program and connections to the militant groups Hamas in the Gaza Strip and Hezbollah in Lebanon. Iranian Foreign Minister Manouchehr Mottaki recently issued a veiled warning over the Saudi intervention in Yemen, saying that “those who pour oil on the fire must know that they will not be spared from the smoke that billows.”

What’s perhaps more troubling in the prospect of a failed Yemen is the effect it would have on the unstable Horn of Africa, where pirates roam and Al Qaeda cells hunker beneath U.S. predator drones.

Recent reports suggest that Houthi rebels may be training in camps in Somalia and that African refugees and mercenaries have joined Houthi ranks. This raises questions about the ability of Yemeni security forces to deal with multiple threats from sea and land.

“With the modest navy we have we’re trying, but we need international help. Piracy is a serious problem for everyone,” said Mohammed Abulahoum, a member of the ruling General People’s Congress party. “The U.S. needs a success story in the region. Yemen is important and Washington could have that success with a lower price tag than you would think.”

The Saudi navy is patrolling the Red Sea to prevent arms and fighters from reaching the rebels. Iran has warships off the southern coast to protect shipping lanes, it says, from pirates. The confluence of so many competing and dangerous agendas, Yemen is small but too big to ignore.

“Somalia and the Horn of Africa,” Jemhi said, “are to Yemen what Afghanistan is to Pakistan.”

jeffrey.fleishman @latimes.com