Ali Abdullah Saleh has a phrase for it. Ruling Yemen, he says, is like "dancing on the heads of snakes." Saleh, Yemen's President, has had plenty of practice. As an army officer back in 1978, he took power in North Yemen after the assassination of the previous President. (North Yemen had become an independent state after the breakup of the Ottoman Empire in 1918.) In 1990 he led the North to victory in a war against South Yemen, the territory that was once the British colony of Aden, and has ruled the unified nation ever since. He's done so using the classic techniques of a Middle Eastern strongman — clamping down on the press, concentrating military and economic power in the hands of friends and family and winning elections by suspiciously high margins. Though Saleh's main source of legitimacy is the semblance of unity he has brought to what is one of the world's most fragmented countries, his chief skill has been survival.Now Saleh, 67, finds his snake-dancing skills being tested as never before. The suspicion that Umar Farouk Abdulmutallab, the Nigerian who allegedly tried to blow up a flight to Detroit on Christmas Day, trained for his mission with al-Qaeda operatives in Yemen has renewed attention on the nation as a breeding ground for extremists. Saleh — a professed U.S. Ally — has promised action and indeed has sent hundreds of extra soldiers to the front lines of al-Qaeda-dominated territory east of Sana'a. But U.S. officials view him as a fickle leader facing a difficult array of threats — from a sectarian rebellion in the north and a secessionist movement in the south, to say nothing of dwindling water supplies and oil reserves. In the past, the Yemeni government has been lax about the threat from al-Qaeda, and critics have charged that Saleh has used jihadists against his own adversaries. "The question is, What's his appetite for taking the fight to the bad guys?" says a U.S. official. It's a good question. But with no other options but to work with Saleh, the issue for the U.S. may be how to manage expectations of what is possible in Yemen. And manage them down.A Troubled HistoryStretched around the southern heel of the Arabian Peninsula and home to 23.8 million people — compared with 28.7 million in neighboring Saudi Arabia — Yemen is one of the poorest countries in the Middle East. It has a long history of being both a source of militants and a staging ground for jihadist attacks. In 2000, al-Qaeda fighters rammed an explosives-packed speedboat into the U.S.S. Cole in the port of Aden, killing 17 sailors. Militants have also attacked the U.S. embassy in Sana'a several times.One indication of Yemen's salience in the fight against terrorism: of the 200 or so detainees still held at Guantánamo Bay in Cuba, some 90 — more than from any other country — are Yemeni. And one indication of the confidence (or lack of it) that the U.S. has in Saleh's government: last year, officials determined that 40 to 50 of those detainees were safe to send back to Yemen for eventual release, but last month it was decided to keep them at Gitmo. Why? Because, said a State Department official, "We all took a look at Yemen and said, Oh, man, this stinks. Normally, when you repatriate [detainees] to a government that is competent, they keep an eye on them. In Yemen, the government has less capacity [to do so]. We'd be negligent if we were ignoring that." And the Administration hasn't. Barack Obama's top counterterrorism adviser, John Brennan, took direct control of the Yemeni-detainee issue, traveling to Yemen twice last year to push the U.S. counterterrorism agenda.Government opponents claim that Saleh's use of state resources to bolster his circle of supporters has left the rest of the country to rot. But not all of Yemen's problems are Saleh's doing. The country faces a severe water shortage, in large part because of the national addiction to khat, a shrub whose young leaves contain a compound with effects similar to those of amphetamines. (The crop accounts for roughly a third of the country's water usage.) Moreover, Yemen's production of oil — which constitutes 90% of its exports — is limited and could end by 2017, according to the World Bank.Without money, Saleh's ability to play patronage politics and buy off the opposition has faded. Though posters bearing his portrait are plastered across Sana'a, his authority doesn't extend very far beyond the capital. About two-thirds of the country is in the hands of either separatist groups or local tribes, some of which have a habit of kidnapping foreign tourists to use as bargaining chips with the central government. Economic and developmental issues — Yemen's most volatile regions are among those hardest hit by drought and government neglect — are at the heart of most of those conflicts, especially the war between the government and Shi'ite rebels, known as Houthis, that is being waged in the northern province of Sa'ada.More ominously, Yemen's social and economic problems have created a vacuum for al-Qaeda to fill. Squeezed out of Iraq and Afghanistan, al-Qaeda operatives have regrouped in Yemen's lawless mountain regions east of Sana'a and have merged with al-Qaeda's Saudi branch to form al-Qaeda in the Arabian Peninsula (AQAP). Led by Naser Abdel-Karim Wahishi and Saeed Ali Shehri, a Guantánamo detainee who was released in 2007, AQAP may constitute 200 core members supported by thousands of locals. Terrorism experts worry that with a firm footing in Yemen, al-Qaeda can coordinate with Red Sea pirates operating from Somalia and eventually reach the Suez Canal — or launch attacks in Saudi Arabia and the other Persian Gulf countries. "Anyone who has been to Yemen knows that automatic arms, explosives, even rockets are sold out in the open — on street corners — often by people who make no secret of their Islamist affinities," says a French counterterrorism official. "It's been this enormous crossroads for people traveling from one jihad, like Iraq or Afghanistan, to another one, like Somalia."The U.S. has few military options against a guerrilla organization that has blended in with the local population and landscape. Air strikes and missile launches from afar run the risk of highlighting America's impotence rather than its might. On Dec. 17 and 24, joint Yemeni-U.S. strikes against purported AQAP training camps took place and killed more than 60 militants, U.S. intelligence officials claimed. It was initially hoped that the attacks had disposed of Wahishi, Shehri and radical cleric Anwar al-Awlaki, the cyber–pen pal of the accused Fort Hood shooter, Army Major Nidal Malik Hasan, but no evidence has yet demonstrated that to be the case. And more missile strikes could prove politically disastrous in a nation whose citizenry seethes with anti-U.S. sentiment.Washington wants to continue to cooperate with Saleh and is encouraging his government to take the lead in rooting out al-Qaeda. The U.S. boosted counterterrorism funding for Yemen from less than $5 million in 2006 to $67 million in 2009 and has been dispatching CIA and military personnel to train Yemeni forces. U.S. Centcom commander General David Petraeus said on Jan. 1 that military assistance would double in the coming year. But outside observers are skeptical of how much effect more guns and money will have, especially if the largesse is appropriated by a corrupt bureaucracy. In any event, Saleh's officials have been wary of seeming to do America's bidding. In 2002 the U.S. scored a victory against al-Qaeda in Yemen and promptly spoiled its success. Paul Wolfowitz, Deputy Secretary of Defense at the time, took public credit for a Predator-drone strike that killed a top al-Qaeda figure, exposing Yemeni leaders to domestic criticism for siding with the U.S.When Awful Is GoodFor foreign aid to have an effect in Yemen, it would have to be tied to some kind of reform process that both addresses Yemen's endemic corruption and devolves some power from Saleh. At the top of the wish list would be a political reconciliation between the central government and the Houthis. Not all is grim. With the right incentives, tribes in al-Qaeda areas could be induced to turn against the extremists, along the lines of the Sunni awakening in Iraq, according to Najeeb Ghallab, a Sana'a University political analyst. "The situation is moving from bad to worse," he says, "but there's a golden chance to save Yemen if it sparks reform."Such reform won't happen overnight, however, and possibly not at all while Saleh is President. His son Brigadier Ahmad Ali Abdullah Saleh is widely viewed as being groomed for succession, and his circle of younger, Western-educated officials is sometimes touted by supporters as being more reform-minded than the elder generation. But skeptics think the son may end up being merely a less crafty version of the father. "Ahmad is popular, but without any strategic vision, he will either be weaker than his father or just continue the way his father did things," says Adel Shogaa, a political-science professor at Sana'a University.That's why managing expectations down seems a sensible step. Perhaps, if the U.S and its allies play their cards right, with a regional plan to expand economic development in Yemen and coordinate security, the sort of disaster seen in Afghanistan and Somalia can be avoided. "We've seen this movie before, and we know how it ends," says Christopher Boucek, an associate in the Middle East program at the Carnegie Endowment for International Peace. "Yemen's problems are really unsolvable. But you can reduce the impact that they will have, make them less bad and increase the chances for it to survive what we know is coming — state failure."Which amounts to little more than hoping that the collapse of a U.S. ally will have consequences that are merely awful rather than catastrophic.— With reporting by Massimo Calabresi and Mark Thompson / Washington; Bruce Crumley / Paris; Rami Aysha / Beirut; and Abigail Hauslohner / Sana'a