* Rebels hold city just north of capital
* President says exit is non-negotiable
* Conflict threatens Arab state with more instability
SANAA, July 13 (Reuters) - Yemen's president on Sunday demanded the withdrawal of Shi'ite Muslim tribesmen from a captured provincial city, in a stand-off that threatens to intensify turmoil in the Arab country.
The Houthis, named after their tribal leader, had handed back an army camp to the Yemeni government on Saturday to try to defuse tensions caused by their capture last week of Omran, some 50 km (30 miles) north of the capital Sanaa.
But President Abd-Rabbu Mansour Hadi signalled the government's patience was running out.
"Everyone has to understand very well that there will be no negotiation over the exit of the Houthis with their weapons from Omran," he was quoted as saying by state news agency SABA, in comments he made at a lecture at a military college.
The fall of Omran has drawn condemnation from the U.N. Security Council and a threat of military action by Hadi, who has ordered the army to raise its preparedness level to "carry out any tasks that may be assigned to it".
The fighting has killed at least 200 people, displaced more than 35,000 and renewed fears for Yemen's stability. The U.S.-allied country is still trying to recover from a political crisis that started with mass protests in 2011 and forced Hadi's predecessor to step down. It is also struggling with a southern secessionist movement and a local wing of al Qaeda.
"Unfortunately, some understood our wisdom and patience in dealing with the problem in Omran and other areas as a kind of weakness and foregoing of responsibility and tried to make use of our willingness to end the conflict in a peaceful manner in a cheap way," Hadi said. "From now on, the state will not let this conflict continue."
The Houthis captured Omran last Tuesday after days of fighting against government soldiers and allied Sunni tribal fighters, in clashes that had threatened to turn into a sectarian conflict.
Hadi said Houthis and other armed groups must leave with their weapons and give up the arms they had seized. He demanded they also hand over bodies and release prisoners.
The fall of Omran came less than a week after the collapse of a ceasefire, for which both sides blamed each other. The Houthis have said their fight was against rivals loyal to the Islamist Islah party, and that they have no intention of attacking Sanaa. (Reporting By Mohammed Ghobari; Writing by Maha El Dahan; Editing by Mark Trevelyan)
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