* Aden big prize for coalition, but violence still a problem
* Coalition, local security forces blame Saleh for unrest
* Bombings and killings are almost daily occurrences
By Mohammed Ghobari and Yara Bayoumy
CAIRO/DUBAI, Feb 9 (Reuters) - The recapture of Aden by Gulf Arab coalition troops last summer has failed to provide any respite from Yemen's civil war, with residents facing a wave of bomb and gun attacks that is crippling efforts to stabilise the city.
Seven months after rebel fighters from the Iranian-allied Houthi militia were driven out of the strategic southern port, there are almost daily assassinations of judges, security officials and police.
Since July, the Gulf coalition and local security forces have struggled to impose order in Aden, opening the way for Islamic State, al Qaeda and other armed groups to operate there with impunity.
The challenges in Aden show how difficult it will be to restore order to a country gripped by months of conflict in which 6,000 have been killed and where Islamist militants have exploited widespread security weaknesses in what Saudi Arabia sees as its backyard.
In Aden's Mansoura district, al Qaeda have clashed in the streets with local security forces. Four Yemeni soldiers and three civilians were killed in heavy clashes overnight between security forces and suspected Islamist militants in old Mansoura, a local official said on Tuesday.
Residents reported that the area was rocked by blasts as aircraft believed to belong to the Arab coalition flew above, and the gunbattles set ablaze a newly-built mall.
The local official said dozens of gunmen belonging either to Islamic State or al Qaeda are thought to be holed up in the neighbourhood among hundreds of civilians.
A Reuters witness described a tense scene in the neighbourhood as residents stayed in their homes for their safety and armed militants walked the streets. Residents said a family of four including two little girls were killed when an errant RPG crashed into their apartment as they were sleeping.
The Saudi-led coalition launched military operations this year to prevent the Houthis, whom Riyadh sees as a proxy for its enemy Iran, from taking control of Yemen after they seized much of the north. For their part, the Houthis deny backing from Tehran and accuse the coalition of launching a war of aggression.
Continuing violence in Aden, the biggest prize yet won by President Abd-Rabbu Mansour Hadi in Yemen's 10-month-old civil war, threatens to undermine the campaign waged on his behalf by the coalition against the Houthis and army units loyal to former president Ali Abdullah Saleh.
"If we leave the situation as it is, you will have the situation you have in Libya," coalition spokesman Brigadier General Ahmed Asseri said, referring to the situation in Yemen as a whole.
A lot of people who oppose the Houthis would form their own militias, he said, and Islamic State would also see an opportunity.
"There will be a chaotic situation. So I think when we start something we have to finish it, by bringing back security and stability to Yemen," Asseri told Reuters.
PATCHWORK OF RIVAL GROUPS
Islamist militants from al Qaeda in the Arabian Peninsula have mounted operations in southern Yemen, including Aden, for years.
But the pace of attacks in Aden has accelerated since July, when local forces backed by Hadi's government and the Saudi-led alliance recaptured the city from the Houthis after months of street fighting, but have seemingly failed to secure it.
Aden residents blame the attacks on Islamist militants, including the Yemeni wing of Islamic State, who appear to be present in the city. But in reality, it is impossible to know who is responsible, given the number of armed groups in Aden and the authorities' failure to investigate.
The coalition and Aden's security forces suspect that Saleh and loyalist fighters are orchestrating the violence to derail any progress in Aden. Saleh, ousted after Arab Spring protests in 2011 and whose exact whereabouts are unknown, denies such accusations.
In December alone, the governor of Aden, a colonel in the southern secessionist movement that seeks independence from Yemen, and a senior militia leader fighting alongside the government, were all killed. Three senior southern Yemeni officials narrowly escaped a car bomb attack in January.
Regardless of who is behind the attacks, stabilising Aden is a priority for the Saudis, not only to counter Islamist militants, but to show that Riyadh's aggressive intervention to stop what it sees as Iranian expansionism is working.
"Restoring some modicum of security to Aden remains a - if not the - key challenge facing the coalition and their allies in Yemen," Adam Baron, a Yemen specialist with the European Council of Foreign Relations, told Reuters.
"While it's certainly not an insurmountable one, it's proven - unsurprisingly - difficult, owing to the myriad of differing factions and a significant influx of arms, to say nothing of the widespread destruction and dissolution of order owing to months of conflict."
The International Crisis Group said that after nearly a year of combat, no side is close to a decisive military victory.
"Neither is defeated or exhausted; both believe they can make additional military gains; and neither has been willing to make the compromises required to end the violence," it said in a report.
BATS OF DARKNESS
Spooked by the attacks in Aden, one southern secessionist activist said he had moved to Sanaa, which is under Houthi control.
"In Aden, if you leave your home, you can't guarantee that you will return safely," said Fahmy, who declined to have his full name published out of fear for his safety.
Extremists can shoot at people in shops, in the market where the drug qat is sold, or while they are travelling in their cars, he said.
East of Aden, al Qaeda militants have taken control of entire towns, meeting little resistance before displaying their black flags and setting up checkpoints.
Even Hadi, who fled Aden last year when the Houthis overran the city, never ventures too far from home since returning to his temporary capital in November.
In late January, a suicide car bomb targeted a security checkpoint near the gate of the palace where he lives, killing at least six people, in an attack claimed by Islamic State.
Aden's security directorate has blamed attacks in recent weeks on the "bats of darkness", groups it says are affiliated to intelligence services and armed gangs loyal to Saleh and the Houthis, rather than Islamic State.
Saudi-led coalition spokesman Asseri also said attacks ostensibly claimed by Islamic State in Yemen are really the work of Saleh and his loyalists to make it appear that the government is unable to run the country.
In the meantime, Aden residents say coalition forces, mostly troops from the United Arab Emirates, are rarely seen on the streets. Many in the city doubt the security situation will improve anytime soon.
"We never think we won't be targeted," said Salah Saqladi, a journalist.
"The coalition has been weak to a large extent," he said. "There are many coalition troops in Aden and the suburbs, but they're all in their bases and haven't spread out on the streets."
(Additional reporting by Mohammed Mukhashef in Aden and Angus McDowall in Riyadh; Writing by Yara Bayoumy; Editing by William Maclean and Giles Elgood)
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