The U.N. envoy behind a Yemen power transfer deal to end months of protest called on Monday for southern separatists and northern Shi'ite rebels to be included as a fragile peace appeared to be holding in the capital Sanaa.

The comments came during a visit to the southern port city of Aden, where at least 16 prisoners, including al Qaeda members, tunnelled out on Monday in a setback to efforts to rein in Islamist militants.

A new government set up last week after President Ali Abdullah Saleh handed over power to his deputy Abd-Rabbu Mansour Hadi under the Gulf peace plan faces multiple challenges.

These include a wrecked economy, a resurgent separatist sentiment in the south and a rebellion by Houthi Shi'ite tribesmen in the northern province of Saada.

U.N. envoy Jamal Benomar, in Yemen to oversee implementation of the Gulf accord he orchestrated last month between Saleh and opposition leaders, on Sunday night met with southern leaders demanding secession from the country formed by the merger of South Yemen with the Saleh-ruled north in 1990.

Benomar said more work was needed for the peace accord to succeed. It's essential that the political process include constituencies who were not directly involved in the negotiations that led to the agreement, he said.

These include the Houthis, the southern movement and the youth. Serious effort will have to be made to address their grievances, he added.

Hundreds of people were at the airport in Aden when Benomar arrived, carrying signs reading, Revolt, revolt, oh South!

We informed Benomar that the southern movement has nothing to do with the conflict in the north, but we are insistent on the demand to liberate land and people in the south, Abdelhamid Shukri, a leader of the Southern Hirak movement, told Reuters after the talks with Benomar.

PRISON BREAK

Islamist militants exploited months of protests against Saleh's 33-year rule to seize control of swathes of land in southern Yemen. This fanned fears in Saudi Arabia and Washington that the Yemeni branch of al Qaeda may gain a foothold near key oil shipping routes.

On Monday, at least 16 inmates, including members of al Qaeda, escaped from Aden central prison, a facility dating back to British rule which ended in 1967, through a tunnel they had dug underneath the compound.

A local source said eight among them belonged to al Qaeda, including some who had been convicted of bombing and assassination attacks on Yemeni security officials.

It was the second major jailbreak involving al Qaeda members since June, when dozens of al Qaeda militants escaped from a jail in another city, Mukalla.

Saleh's foes have accused him of deliberately letting Islamists in the south grow stronger to reinforce his argument that his rule alone can prevent the country sliding into chaos that would empower al Qaeda, whose Yemeni wing has planned abortive attacks on U.S. and other targets.

UNIVERSITY REOPENS

Despite the jail break, Yemenis have begun to see some fruits of the peace accord. A fragile calm appeared to be returning to the capital, which has been divided into three parts between Saleh loyalists and his opponents.

Witnesses said the University of Sanaa opened its doors on Monday for the first time since February, although students said many professors did not appear after dissident soldiers left the campus. Among the few who did, tensions between supporters and opponents of Saleh were evident.

Most of the students are back to study, now that the unity government has been established, but we have a shortage of professors because many of them got contracts in Saudi Arabia, said Amjad, a student in the media department.

On Riyadh Street, the main commercial district in western Sanaa, shops opened for the first time since clashes between Saleh's forces and those allied with his arch-enemy, Ali Muhsin, a dissident general, began three months ago.

Armed soldiers remained behind sand barricades they had built to protect themselves but did not attack one another.

Despite their relief at the uncertain peace, shop owners worried about the lack of business in the city.

We opened our shops despite our fear that clashes will resume... but there are no customers because people do not have money to buy things, local merchant Ahmed al-Umari said on Monday while sitting on a street corner outside his shop.

If violence starts again I will escape to my country, said Ali, a merchant originally from East Africa. I saw death during these clashes, there is no real safety here.

(Additional reporting by Tom Finn and Mohammed Ghobari in Sanaa; writing by Nour Merza and Sami Aboudi; editing by Philippa Fletcher)