* Southern movement reinvigorated by fall of strongman Saleh
* U.S. sees Iran's hand in south Yemen separatism
* Southerners: unity a failure, we can handle al Qaeda ourselves
* But personality, policy disputes may limit breakaway bid By Andrew Hammond
ADEN, Oct 10 (Reuters) - Yemeni separatist leaders, exploiting a weakening of central authority and freer political atmosphere since a national uprising last year, have returned from exile to rally support for reviving the state of South Yemen.
Secessionists in the south, Houthi Islamist tribal rebels in the north and al Qaeda militants all benefited from the popular upheaval in the Arabian Peninsula country that ousted veteran strongman president Ali Abdullah Saleh in February.
But there is now serious international concern that al Qaeda's strongest regional wing will use the disorder in Yemen to entrench itself in some areas especially t h e south, m enacing top oil exporter Saudi Arabia next door and Western interests in the Middle East, notably oil shipping through nearby sea lanes.
Southern separatist leaders say al Qaeda would lose traction and be neutralised more easily in an independent south where resentment would no longer fester over what they call a corrupt, repressive and tribally defined system run from the north.
Some senior separatists have returned to south Yemen of late to drum up grassroots backing via street rallies, tours of southern provinces and the creation of umbrella groups.
The cause appears to captured hearts and minds in Aden. Once the capital of South Yemen, the ancient seaport at the foot of desert mountain outcrops is covered in pro-independence graffiti and flags of the old southern state hang from many lampposts.
Meanwhile, the U.S.-backed Yemeni government based in Sanaa, in the north, is planning a national dialogue starting in November on reforming the political system and thrashing out issues such as balance of power and division of resources.
Western nations suspect that some southern leaders, whose movement is known as al-Hirak, are less interested in the dialogue and more in breaking away, possibly with the backing of Iran, arch-foe of the Saudis and Americans.
But personality and policy disputes abound within the southern movement and these may limit any breakaway bid. Separatist leaders have not said if they will join the dialogue.
"The Hirak has a crisis of leadership and unity of its ranks," said Yemeni political commentator Madyan al-Maqbas.
"One trend wants a federal state, which it could get, but another wants independence, and others among them want independence but without Iranian or U.S. interference."
Western diplomats in the Yemeni capital Sanaa say Iran and its Lebanese militant ally Hezbollah have forged links with southern secessionists as part of a broader struggle for regional predominance with Saudi Arabia.
Yemeni President Abd-Rabbu Mansour Hadi said last month that Sanaa had broken up six Iranian cells in Yemen this year, prompting Tehran to summon Yemen's charge d'affaires in protest.
Western and Gulf Arab states sponsoring the post-uprising transition in Yemen are considering sanctions on figures seen as hindering a June U.N. Security Council resolution backing the reform process, diplomats and officials say.
CONCERN OVER AL-BEIDH
One figure drawing attention is Ali Salem al-Beidh, the Beirut-based south Yemeni leader who failed in a 1994 civil war to reverse a 1990 deal merging the former South Yemen with the north. Beidh now runs a pro-independence satellite TV station.
"We know that Iran is interested in promoting some of the more extreme elements of the secessionist movement, providing funding to Beidh," a senior Western diplomat in Sanaa said.
"Beidh is in Beirut with the intention of destabilising the situation in the south, trying to block implementation of the national dialogue and creating an anti-Yemen programme in southern Yemen."
Beidh sent a representative to the former southern capital Aden in August, a former ambassador of united Yemen who was briefly arrested on arrival.
"Threats like this will cause injustice to southerners and frankly will not be effective," said Beidh's envoy Ahmed al-Hasani, referring to possible sanctions. "We have no money or millions that we fear for in foreign banks."
Beidh supporters organised some protests in Aden which Hasani says the authorities have suppressed. Aden authorities, led by a governor from the Sanaa-based Islamist Islah party, deny that, saying protests are allowed in designated areas.
South Yemen emerged as an independent state, separate from North Yemen, when Britain withdrew in 1967 from areas it controlled along the Arabian Peninsula's southern coastline.
Conflict between the political systems of the tribal North and Marxist South led to war in 1979. But when its major patron the Soviet Union fell apart, the South merged in 1990 with the militarily stronger Yemeni Arab Republic based in Sanaa.
UNITED YEMEN A MISTAKE?
Now Hirak politicians say unity with Sanaa was a historic mistake that led to appropriation of public land by Saleh and his cronies, dismantling of southern institutions including the army, and dismissal of tens of thousands of administrators.
They say Saleh ruined what was a well-functioning state, proud of its efforts in education and empowering women.
Northern politicians say they recognise the grievances but they should be addressed within a united post-Saleh Yemen. Some have threatened force to stop any future separatist moves.
Hasani said he had little faith in the national dialogue planned by Hadi. "We think the solution is negotiations between the occupied south and the Sanaa regime under international and regional supervision, with one aim - independence," he said.
"Our struggle is peaceful. But it remains the right of our people to defend itself by all means available ... (Beidh) is the legitimate president of the south."
Mohammed Ali Ahmed, a former South Yemen interior minister, has also been touring southern provinces since his March return from a decade in Britain in an effort to unify diaspora and internal Hirak ranks under a new "National Coalition".
But Ahmed said he found sentiment on the ground was more radical than southern leaders exiled abroad - who had agreed to push Sanaa for a federal southern entity - anticipated.
"I found people believing in return of the southern state and an immediate breaking of contact with north," he said. "I tried to convince people but found no way. What people found acceptable was freedom, self-determination and return of state."
While the south is more sparsely populated than the north, politicians say it boasts mineral, oil and gas and tourist potential for a flourishing economy.
The Yemeni Socialist Party, which once ruled South Yemen, formally favours a federal system that recognises all of the old southern state as one region. Some socialist and Hirak figures are mooting the idea of a southern referendum after five years.
One card southern leaders say they could play to their advantage with international powers is al Qaeda, which has spread in the south despite a socialist legacy of secular politics. They say Aden could curb al Qaeda better than Sanaa.
"We hope they understand that an independent state will be a factor for security, stability and peace in this part of the world," Hasani said. "The south is ready to set up a modern state and rebalance the region in a way that ensures stability."
(Additional reporting by Dhuyazen Mukhashaf; Editing by Mark Heinrich)
Keywords: YEMEN SOUTH/SEPARATISM