LONDON- Yemen's government recognizes the urgent need for economic and political reforms to help root out al Qaeda militancy which risks threatening regional stability, according to a draft document at an international conference.

In the statement, obtained by Reuters ahead of the talks, major powers committed to supporting Yemen's government, which agreed to pursue discussions with the International Monetary Fund to tackle the poverty which is conducive to radicalization.

Prime Minister Gordon Brown, anxious to prevent Yemen becoming a failed state, called the London talks after a Yemen-based al Qaeda affiliate said it was behind an abortive bid to blow up a U.S.-bound plane with 300 people on board.

The challenges in Yemen are growing and, if not addressed, risk threatening the stability of the country and broader region, the chairman's draft statement said.

It said the talks aimed to find a shared analysis of Yemen's problems, including the conditions conducive to radicalization and instability, and called for a comprehensive approach.

The government of Yemen recognizes the urgent need to address these issues, the statement added.

It said the conference would affirm Yemeni sovereignty and commit to non-interference in the country's internal affairs.

The December 25 attack drove home how al Qaeda could threaten Western interests from Yemen and highlighted the risk that it could become a failed state, compounding security challenges already posed by lawless Somalia just across the Gulf of Aden.

Apart from al Qaeda, Yemen faces a Shi'ite Muslim revolt in the north, a secessionist movement in the south, water shortages, falling oil income and weak state control.

Keen to harness U.S. support and funding, Yemeni President Ali Abdullah Saleh, 67, has sought to paint his internal foes as all somehow linked to al Qaeda.

Underlining the volatility in the region, Saudi Arabia declared victory on Wednesday over Yemeni Shi'ite rebels after a truce offer from the insurgents. Yemen's government had been fighting the rebels since 2004, while Saudi Arabia had stepped in since November, when the rebels seized some Saudi territory.

FRAGILE STATE

About 42 percent of Yemen's 23 million people live on less than $2 a day, the World Bank says. The population is set to double in 20 years, but jobs are already scarce and water resources are collapsing, making it easier for militant groups such as al Qaeda to recruit disenchanted youths.

Wednesday's talks, which bring together the Group of Eight world powers, Yemen's neighbors in the Gulf Cooperation Council (GCC), and Egypt, Jordan and Turkey, are intended to support Yemen, while pushing for economic development and reform.

U.S. Secretary of State Hillary Clinton will stress at the talks that foreign donors must step up development aid while Yemen's government must become more transparent and efficient in how it makes use of this aid, a senior U.S. official said.

It's more about trying to show international support, create unity, get a common sense of what is needed and what people's capacity to contribute is, and then build a game plan from there, said the official, who declined to be named.

The European Union, United Nations, World Bank and the IMF will also be represented at the talks, scheduled to start at 1600 GMT and last just two hours.

Yemen is not a failed state but it's an incredibly fragile state, British Foreign Office Minister Ivan Lewis said in a video on a government website.

We want to get in there early to offer assistance and to prevent Yemen becoming a failed state, he said.

CORRUPTION CONCERNS

Western delegates will also push Yemen to tackle corruption.

A donors' meeting in London in 2006 pledged about $5 billion for Yemen but only a small portion has been disbursed, partly because of concerns about how the money would be spent.

Clinton does not expect any concrete pledges of new assistance for Yemen at the meeting, but instead is focused on building momentum for more sustained engagement in coming months, the senior U.S. official said.

The draft statement said that the GCC would host a meeting of Gulf and other international donors on Yemen in Riyadh on February 22-23.

Yemen has declared war on al Qaeda under pressure from Washington and Saudi Arabia, its oil-producing neighbor and its main aid donor along with the United States.

Britain raised its terrorism threat level after the failed Detroit attack to severe and ahead of the London meeting, meaning an attack in Britain is considered highly likely, and has suspended direct flights from Yemen.

Security will be intense for this week's meetings.

(Additional reporting by Mohamed Sudam, Andrew Quinn and Adrian Croft, writing by Keith Weir and Estelle Shirbon, editing by Peter Millership)

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