Yemen’s president said he was ready to talk to al-Qaida members who renounced violence.
Ali Abdullah Saleh's comments suggested he could show them the same kind of leniency he had granted militants in the past despite US pressure to crack down on the terror group.
Yemen is moving cautiously in the fight against al-Qaida, worried over a potential backlash in a country where anger at the US and extremism are widespread.
Thousands of Yemenis are battle-hardened veterans of past “holy wars” in Afghanistan, Bosnia, Chechnya and Iraq, and though most are not engaged in violence now they preserve a diehard al-Qaida ideology.
“Any movement against al- Qaida will lead to the fall of the Yemeni regime,” warned Ali Mohammed Omar, a Yemeni who fought in Afghanistan from 1990-1992 and said he met Osama bin Laden twice during that time.
If the US or its allies become directly involved “the whole (Yemeni) people will become al- Qaida. Instead of 30 or 40 people, it would become millions,” he said.
Yemeni forces recently launched their heaviest strikes and raids against al-Qaida in years and Washington has praised San'a for showing a new determination against al-Qaida's offshoot in the country.
The US has increased money and training for Yemen's counter-terror forces, calling al-Qaida in Yemen a global threat after it allegedly plotted a failed attempt to bomb a US passenger jet on Christmas Day.
But Mr Saleh's comments raised the possibility he could continue a policy that has frustrated US officials in the past — releasing al- Qaida militants on promises they will not engage in terrorism again.
Several have since broken those promises and are believed to have returned to al-Qaida's ranks.
“Dialogue is the best way ... even with al-Qaida, if they set aside their weapons and return to reason,” Mr Saleh said in an interview with Abu Dhabi TV.
He said Yemen would pursue those who continued violence, but “we are ready to reach an understanding with anyone who renounces violence and terrorism”.
In the past Yemeni officials have defended the reconciliation policy as a necessity, saying force alone cannot stop al-Qaida.
Mr Saleh's government has been weakened by multiple wars and crises and has little authority outside a region around the capital, with tribes dominating large areas of the impoverished mountainous nation.
Hundreds of al-Qaida fighters, foreigners and Yemenis, are believed to be sheltered in mountainous areas.
The regime has also used Islamic radicals to fight a war against Shiite rebels in the north and to oppose secessionists in the south — two threats that many feel the government sees as more dangerous than al-Qaida.
Meanwhile US President Barack Obama said he had no intention of sending American troops to Yemen or Somalia.
He told People magazine in an interview to be published on Friday that he still believed the centre of al-Qaida activity was along the border between Afghanistan and Pakistan.