Four days of intense fighting threatens to wreck a deal to remove Yemen's leader from power, with the government and opposition quarrelling over who will sit on a committee overseeing the military.
At least two people were killed on Sunday in battles between loyalists of President Ali Abdullah Saleh and foes in Taiz, a centre of ten months of protests that have driven the Arab world's poorest country to the brink of civil war.
The European Union urged the government and opposition to agree quickly to both a unity interim cabinet and the makeup of a separate council tasked with overseeing the military and returning it to barracks to end the fighting.
Sunday's deaths bring to at least 19 the toll from four days of fighting in Taiz, a southern city.
The deal to remove Saleh was crafted by Yemen's richer Gulf Arab neighbours, who share U.S. fears a political and security vacuum will embolden the Yemeni branch of al Qaeda, and see multiple internal conflicts turn into full-blown civil war.
Saleh signed the deal last month after repeatedly balking, and it has been backed by the United Nations.
But implementation has bogged down over the formation of a government that would lead the country to a presidential election in February and the makeup of the body to run the military - key units of which are led by Saleh's relatives.
Workers at a field hospital in the city some 200 km (120 miles) south of the capital Sanaa said a woman and child died from injuries suffered while trapped in a building hit by artillery fire in the midst of the fighting.
The fighting eased later on Sunday. Gunmen from anti-Saleh factions held positions outside schools and government buildings - their windows shattered and their walls pocked with bullet holes - in a district of the city near where battles had raged.
Residents said on Saturday government forces had used artillery, tanks and rockets in residential areas of Taiz, trapping about 3,000 families during skirmishes with opposition fighters who responded with medium and light fire.
The province's governor was trying to negotiate a ceasefire between units loyal to Saleh - including the well-armed Republican Guard commanded by his son Ahmed - and his enemies.
There's no doubt that the army were responsible for some of the civilian deaths, Governor Hammound Khaled al-Soufi told reporters. Both sides shelled randomly into the city, that was a huge mistake.
One resident whose house was partly destroyed in the fighting said government forces had directed heavy fire on gunmen operating from residential areas.
The gunmen are using hit and run tactics, firing from houses and then fleeing, said Najib al-Muwadim.
Prime Minister-designate Mohammed Basindwa, an opposition leader, has warned his side would rethink its commitments under the transition deal if the fighting in Taiz did not stop.
Opposition parties that are to form a government along with members of Saleh's ruling party demand the immediate formation of the committee overseeing the military, foreseen under the power sharing deal.
Under the agreement, the military committee, headed by Vice-President Abd-Rabbu Mansour Hadi, would oversee the end of fighting and the return of forces to barracks. It would have equal numbers from Saleh's General People's Congress (GPC) and the opposition Joint Meeting Parties (JMP).
A GPC official said on Saturday Saleh's party was not happy about opposition nominees to the committee. The state news agency later quoted Hadi's office as saying any agreement on the military body depended on forming a government.
Political crisis has frequently halted the modest oil exports Yemen uses to finance imports of basic foodstuffs, and ushered in what aid agencies deem a humanitarian crisis. More than 100,000 people have been displaced by military conflicts in both the north and south.
The EU envoy to the country, Michele Cervone d'Urso, told a news conference in the capital he hoped to see the cabinet and military committee agreed within days.
It is time for Yemenis to see the benefits of a peaceful transition. They hope to see electricity and the dismantling of military checkpoints.
(Reporting by Mohammed Ghobari; Writing by Joseph Logan; Editing by Peter Graff)