* Militant leader wants brother, others freed to quit Radda town
* Acting president's aide says presidential vote on time in Feb
* Fresh fighting in northern Yemen kills two (Adds VP says elections on schedule, quotes, northern fighting)
By Mohammed Ghobari
SANAA, Jan 18 (Reuters) - Yemeni Islamist fighters who seized a small town southeast of the capital Sanaa this week have said they will withdraw if several comrades are released from jail, tribal sources said on Wednesday.
Yemeni tribesmen negotiating with the militants on behalf of the government said Tareq al-Dahab, leader of the group that took over Radda, about 170 km (105 miles) southeast of Sanaa, agreed to go if his brother Nabil and several others were freed.
Dahab is related to Anwar al-Awlaki, a U.S. citizen whom Washington accused of a leadership role in the Yemeni branch of al Qaeda, and assassinated in a drone strike last year.
Radda's capture underscored U.S. fears that political upheaval in Yemen over the fate of President Ali Abdullah Saleh will give al Qaeda a foothold near shipping routes through the Red Sea and may spread to world No. 1 oil exporter Saudi Arabia.
Saleh formally handed over power to his deputy late last year, in line with a Gulf-brokered plan to end months of mass protests and bursts of open combat between his forces and those of a rebel general and tribal militias.
Under the deal hammered out by Yemen's wealthy neighbours, Saleh's General People's Congress and opposition parties divided up cabinet posts between them, forming a unity government to steer the country towards presidential elections in February.
Saleh's opponents accuse him of ceding territory to Islamists to bolster his assertion that his rule alone keeps al Qaeda from growing stronger in Yemen, and ultimately aiming to retain power by sabotaging the transition deal.
A spokesman for Yemen's acting leader, Vice President Abd-Rabbu Mansour Hadi, dismissed comments by the foreign minister, who suggested a day earlier that elections may be delayed due to deteriorating security.
"There is no scope for delaying the ... election because it will be conducted under the supervision of the international community," said Yehia al-Arasi.
Washington, which long backed Saleh as key to its "counter-terrorism" policy, endorses the transition plan. U.S. Secretary of State Hillary Clinton said on Tuesday that Saleh was failing to meet his pledges under the deal and that Washington was "focused on the threat posed by al Qaeda in Yemen".
THREATS TO HANDOVER
Dozens of fighters entered Radda on Sunday, expanding Islamist control beyond southern Abyan province, where they have taken several towns since an uprising against Saleh began early last year. The streets of Radda were empty on Wednesday, residents said.
In the militant-controlled town of Jaar in Abyan, residents said al Qaeda linked fighters calling themselves Ansar al-Sharia (Partisans of Islamic Law) planned to behead two Saudi nationals and one Yemeni for spying for the Yemeni army.
In another outbreak of violence, two people were killed and dozens injured in fierce gunbattles late on Tuesday in Saada, a rugged, impoverished governorate bordering Saudi Arabia that has been the scene of intense sectarian fighting in recent months.
"Houthi" rebels, who draw their name from a tribal leader and are members of the Zaydi branch of Shi'ite Islam, seized control of a major highway they say is used to send weapons to from Saudi Arabia to their local foes.
Two Houthi fighters were killed and dozens injured as government troops fought them with automatic weapons to try to regain control of the road, said Dayfallah al-Shami, a member of the Houthi political leadership council.
The area has seen Houthi fighters attack a religious school controlled by Salafis, Sunni adherents of a puritanical creed influential in Saudi Arabia which deems Shi'ites heretics.
The northern conflict is just one of several threats to smooth implementation of the power transfer deal signed in November with the goal of steering Yemen away from civil war.
Question marks remain over the intentions of Yemen's veteran leader, who has said he will stay in the country, reversing a pledge to leave for the United States.
Yemen's parliament has yet to vote on a law - denounced by protesters demanding Saleh's ousting - that would give him and his associates immunity from prosecution over the killing of protesters. The measure has the cabinet's backing.
"The legitimacy of the parliament depends on the Gulf initiative and its operational mechanism. It must pass the law because it is written into the Gulf initiative," Arasi said. (Additional reporting by Tom Finn in Dubai and Mohammed Mukhashaf in Aden; Writing by Isabel Coles; Editing by Louise Ireland)
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