The loss of the strategic southern port of Aden in the space of just a few days is a spectacular reversal for the Houthis, a once obscure rural group that won national importance last year before gaining the upper hand in a four-month-old civil war.

At stake in what happens next is the stability of a country that is a cockpit of rivalry between regional powers Saudi Arabia and Iran, sits on leading international shipping routes and provides a haven for al Qaeda's boldest international wing.

Abdulkhaleq Abdulla, a political scientist in the United Arab Emirates (UAE), said Gulf Arab states saw Yemen as a proving ground for their resolve to confront Tehran, and last week's capture of Aden proved they could hold their own.

"If America and Iran are now on good terms ... this is a show of things to come - We are ready to defend our own turf," he said, referring to an Iranian nuclear accord that could open the way to a rapprochement between Washigton and Tehran.

"In this zero-sum game, the balance of power in the region has swung to the Gulf states' advantage, after this net loss for Iran in Yemen."

The capture of Aden by thousands of anti-Houthi forces was made possible in part by a military effort prepared for many weeks by wealthy Gulf Arab states which trained and supplied Yemeni recruits especially for the task.

The Gulf Arabs, including Saudi Arabia and the United Arab Emirates (UAE), have deployed some of their own special forces, as well as backing up the effort with hundreds of air strikes.

ALLIANCE WITH SALEH

But the advance may also have benefited from efforts to weaken a key pillar of Houthi power, namely an alliance with former president Ali Abdullah Saleh, who has the loyalty of army units that are probably the country's toughest military force.

The tie-up is rooted in tactics rather than ideological sympathy — Saleh and the Houthis were once sworn enemies but made common cause last year against shared enemies.

The move, typical of Yemen's constantly shifting political landscape, gave the Houthis a decisive edge on the battlefield.

Diplomats and Yemeni politicians say representatives of Saleh, whose army loyalists laid siege to Aden alongside the Houthis back in March and April, are negotiating with diplomats from the UAE.

If successful, the gambit may deliver a critical impetus to U.S.-allied Gulf States, who intervened militarily in March to restore to power President Abd-Rabbu Mansour Hadi, a Saudi and U.S. ally, and beat back Iran's influence in the region.

"Gulf countries have been working on the military training and arms supplies that drove the events in Aden, but it's simultaneously working through the backdoor to split Saleh from the Houthis," Farea al-Muslimi, a Yemeni researcher with the Carnegie Middle East Center said.

Adel Shuja, a leader of the party Saleh leads, told Reuters that negotiations between the ex-president's representatives and the United States, Britain and the UAE "to find a peaceful solution to the crisis...have made significant progress so far".

A Western diplomat contacted by Reuters played down the significance of the contacts, saying that they came as part of regular discussions with Yemeni officials. Saleh's party denied any meetings in an official statement, and a party official tweeted that Saleh was opposed to quitting the country.

A politician from Yemen's government said the talks focused on the departure from Yemen of Saleh, an arch survivor who balanced nimbly between rival armed and tribal groups during his three decades in office.

POLITICS TURNED UPSIDE DOWN

Despite being forced to step down in 2012 under a Gulf-brokered transition plan following mass protests against his decades of rule, Saleh has remained a powerful political player operating behind the scenes, enjoying immunity under the deal.

Saleh's fortunes are now again in question. A diplomat said Saleh was "gambling, as ever, but now less for power than for survival".

Saleh backed the Houthis when they seized the capital Sanaa in September and pressed south toward Aden alongside Saleh forces, triggering the Arab intervention on March 26.

"They're speaking to him to extract him from the country, because they realize that while he cannot again rule the country, he can still destroy it," a Yemeni politician told Reuters.

Aden is likely to be a base for any expansion of the Gulf Arab-backed ground campaign, and commanders see their training of Yemeni forces as essential to its success.

"The most important was the reorganization of the army from anew on a modern and patriotic footing, and the training by the (Gulf) coalition of its ranks in fighting and their equipping with many modern armored vehicles, artillery and machine guns," the official told Reuters.

Morale, at least for the moment, is high.

"The situation has been completely turned upside down after the battle for Aden, and it will across the whole South very soon," a senior commander in the anti-Houthi forces said.

Another offensive, he added, was planned for the coming days somewhere in Yemen's north, where battles are also raging between Gulf-backed fighters and the Houthis.

But the momentum may slow if the fight approaches the Houthi-controled capital of Sanaa, as Yemen's center and north are a bulwark of support for the group and full of its heavily-armed backers.

The Gulf-backed forces have ended a tight Houthi blockade of Aden that cut off badly-needed supplies of food and fuel.

Four cabinet ministers arrived on Thursday "as part of the initiative to revitalize the state and repair infrastructure and renew institutions wrecked by the attacks on the city," the Yemeni politician said.

But the Arab coalition and especially the UAE, which local fighters say has taken a lead role in the Aden offensive, have made sacrifices to cement the advance.

At least two Emirati soldiers have fallen, while advising the local militias in Aden, and the rare spectacle of a flag-draped coffin disembarking from a military plane in the oil-rich country underscored its commitment - now bearing fruit - to reverse the campaign's flagging fortunes.