President Ali Abdullah Saleh unexpectedly returned to Yemen on Friday after three months in Saudi Arabia recovering from an assassination attempt, raising the risk of further violence and civil war.

As Saleh's return was reported on state television and confirmed by Reuters, the sound of gunfire and explosions echoed across the capital of the lawless Arabian Peninsula nation.

"The protesters will be very angry, we thought he was done... We're going to see big crowds today on both sides," said one protester, Zakaria. "I'm actually glad he's back -- better that we have the regime here to topple."

Impoverished Yemen, which is home to a tenacious wing of al Qaeda and plagued by sectarian and separatist insurgencies, has teemed with unrest since early this year, with protests inspired by uprisings across the Arab world.

Violence in the capital Sanaa has escalated sharply this week as loyalist troops clashed with forces backing anti-Saleh protesters, with more than 100 people killed this week bringing the toll in the eight month uprising to about 450 dead. Bloodshed is expected to worsen with Saleh's return.

Yemen is clearly at a critical juncture. Analysts say if Saleh clings to power, there will be war, but there may also be a slim chance he could step down and start a power transfer. Saleh has announced several times this year that he would agree to step down, only to reverse himself at the final hour.

"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.

"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."

Others say Saudi Arabia, the regional power with greatest influence over Yemen, might not have allowed Saleh to return unless a deal was likely.

"I'm sure he talked of his return with King Abdullah during their meeting [on Monday night]," said Ghanem Nuseibeh, an analyst and partner at Cornerstone Global consultants in London.

"The Saudis would want that if he goes, then any transition of power is in their interests and doesn't bring about an anti-Saudi government. If there wasn't anything for them they wouldn't have let him go."

Saudi Arabia, which shares a porous 1,460 km border with Yemen, has been a key player in Yemen for decades, offering support to Saleh's government to keep al Qaeda at bay and leading regional talks on a power transfer.

Yemeni state television reported his return, saying, "Ali Abdullah Saleh, President of the Republic, returned this morning to the land of the nation safely after a trip for treatment in Riyadh that lasted more than three months."

Within minutes of the announcement, loud bursts of gunfire and explosions were heard echoing through the capital. There were also fireworks.

The president's supporters expressed delight at his arrival.

"I'm so excited," said Akram al-Aghbari, a doorman. "He is an honourable and great man. I know he's coming to stop this terrible violence. People here without him only know how to rule with weapons, but with him back, just you watch: he will return the country to what it was."

The announcement took by surprise opposition politicians, protesters and diplomats who have been entreating the veteran leader to step down.

Asked what Saleh's return meant, one Riyadh diplomat said simply: "It's really bad".

A high level negotiator told Reuters he had not expected Saleh's return, but that the move might make it easier to deal with the president directly.

Aides to Saleh in Riyadh, where he had been staying with a large entourage in a lavish, marbled palace in a downtown neighbourhood, had appeared more optimistic about his return this week.

Talking about the potential for violence if the president returned, one said: "it's already there and he will go and solve it."

There were various unconfirmed reports that Saleh would speak later on Friday. As heavy shelling continued in some Sanaa neighbourhoods, an official of Saleh's ruling General People's Congress said the party would hold a meeting later Friday.

Protesters are expected to pour onto the streets of the ancient capital during Friday prayers, demanding an end to Saleh's 33-year rule.

Samia al-Aghbari, an activist in the protest movement, said: "Saleh's return is a challenge to the people who have decided to topple him and for the international community. Saleh has returned to ignite a civil war with the help of the Saudi regime."

Yasser, a hotel cleaner, said: "I can't believe he came back. He shouldn't have come back. Us regular people we are so sick of all of them: the opposition and the government. Can't they see they're going to ruin this country?"

Neighbouring Gulf states tried to broker a deal for Saleh to step down, only for him to pull out at the last minute three times since April. His long sojourn in Saudi Arabia had made it seem likelier that he would finally agree to step aside.

GCC secretary general Abdbullatif al-Zayani flew into Sanaa this week to try and resurrect the deal but left after two days with nothing to show for his efforts.

Saadaldeen Talib, a former opposition parliamentarian, said: "[His return is] quite awful actually. It makes it more likely the violence will continue. The whole situation will go out of hand... I don't know where it will end."-Reuters