Islamic militants have attacked the southern Yemeni town of Houta in a dawn raid that left one policeman dead and at least three others injured.

About 150 to 200 militants clashed with police Wednesday around security and government buildings, the central bank and courts. The militants, including suspected members of al-Qaida, seized entire neighborhoods after the gunfights with government forces.

The attack raised new fears about the stability of the Yemeni government after four months of unrest. Militants seized two other southern cities in May.

The latest assault came as Yemen's Gulf Arab neighbors renewed their offer to broker the country's political crisis. But they offered no solution to the stalemate in which wounded President Ali Abdullah Saleh has three times refused to relinquish power. He currently is recuperating in Saudi Arabia from a bomb attack on his presidential compound earlier this month.

Yemen's state news agency said Mr. Saleh told Saudi King Abdullah by telephone that his health is “constantly improving.”

On Tuesday, hundreds of thousands of Yemenis rallied in major cities throughout the country, demanding that Mr. Saleh step down and calling for a transitional council that excludes members of the current government.

In the capital, Sana'a, a huge crowd swelled outside the home of Yemen's acting leader, Vice President Abd al-Rab Mansur Hadi — a day after Yemen's political opposition held talks with him on a possible transition plan.

In Washington, the State Department's counterterrorism coordinator said the U.S. is concerned Yemen's unrest could fuel connections between al-Qaida-linked militants there and al-Shabab insurgents in Somalia.

Daniel Benjamin said the United States is still cooperating with Yemen in the fight against al-Qaida despite the nation's political crisis and Mr. Saleh's absence.