Yemen's president has made a new offer to protesters demanding his ouster, proposing he stays in office until elections are held but transferring his powers to a caretaker government, an opposition source said on Wednesday.   

Ali Abdullah Saleh made his offer at a meeting on Tuesday night with Mohammed al-Yadoumi, head of the Islamist Islah party.

It was the first time Saleh had dealt with Islah, once a partner in his government, an opposition spokesmen said.   

"The opposition could pick a head of government of its own choosing and there would be parliamentary elections by the end of the year," an opposition source said of Saleh's offer.   

He said the opposition was still considering its response. Weeks of protests by many thousands in Sanaa and other cities have sent Saleh's 32-year rule to the brink of collapse, but the United States and top oil producer Saudi Arabia, a key Yemen financer, are worried over who could succeed their ally.   

They have long regarded Saleh as a bulwark of stability who can keep Al Qaeda from extending its foothold in an Arabian Peninsula country that many see as close to disintegration.

Yemen's Al Qaeda wing claimed responsibility for a foiled attempt in late 2009 to blow up an airliner bound for Detroit, and for US-bound cargo bombs sent in October 2010.   

US officials have said openly they like working with Saleh -- who has allowed unpopular US air strikes in Yemen against Al Qaeda -- and Saleh has said the US ambassador in Sanaa is involved in talks to find a solution.

Any agreement between Saleh and the parties could run into trouble from another party -- the protesters.

A coalition of protester groups calling themselves the Youth Revolution issued a statement on Wednesday saying they would not leave the large public space near Sanaa University until Saleh and his allies are removed from power.    

"A temporary presidential council of five individuals known for experience and integrity should run the country for an interim period (of six months)," it said, adding the council should appoint a technocrat to form a caretaker government.   

It also called for corruption trials, return of "stolen public and private property", release of political detainees, dissolving state security forces and closing the information ministry -- steps taken in Tunisia and Egypt after similar pro-democracy uprisings had removed entrenched leaders.    - Reuters