Saana: Yemen came close to the brink on Monday as security forces shot dead 17 people as thousands of protesters stormed the Governor's headquarters in the city of Taiz, 200 kms south of here.

Troops loyal to General Ali Mohsin, who have sided with the anti-regime protesters barred police from storming demonstrators camping at a square in central Saana.

In the tense face-off, a TV channel quoting youth activists, said the police backed off.

The troops and police near confrontation came amidst rising tempers in the strategically located Red Sea Arab state as reports quoting high US and Yemeni officials said that embattled President Ali Abdullah Saleh is likely to be eased out and offered a safe passage out of the country.

Witnesses said security forces and plainclothes gunmen opened fire on the protesters, killing 17 people on the spot and injuring 100 others.

The bloodshed came after two days of protest in the city and has sent the death toll in the violence-wracked country to more than 120.

"At least 17 people were killed by live bullets and hundreds lay wounded as troops on nearby rooftops opened fire with live ammunition," opposition activists said.

There were also reports of regime loyalists in civilian clothes firing on protesters in Hudeida, west of Saana.

As violence continued to inflame the strategically located country on the Red sea, the American government had dropped its backing to the beleaguered President and was helping to negotiate his exile in another country with members of his family, reports said.

The US and Yemeni officials said that Washington had almost finalised a deal to replace Saleh by his deputy Abd al-Rab Mansur al-Hadi.

The change of regime in Yemen -- the third in an Arab country after Egypt and Tunisia -- was also backed by Gulf monarchies and the country's closest ally and banker Saudi Arabia.

The Gulf Foreign Minister who met in Saudi capital of Riyadh in a statement said the "Gulf Cooperation Council (GCC) have agreed to begin contact with the Yemeni government and opposition to overcome the current situation."

The GCC supported the moves to work out a negotiated agreement to overcome the status quo.

The US, Arab and Yemeni officials said that high-level negotiations were on to discuss a package for Saleh which would include a safe passage for him and his family to another country and transfer of power to Vice President al-Hadi till fresh elections are held within six months.

If Saleh agrees to the terms, he would be the third Arab head of state to demit office in the last few months in the face of countrywide riots and crackdown which have left more than 100 people dead.

The Obama administration, which had long supported President Saleh even in the wake of wide spread protests, have quietly shifted position and decided he must be eased out of office, reports said.