WRAPUP 1-Yemen pledges urgent reforms to tackle al Qaeda

* Yemen challenges could undermine region - draft statement

* Yemen government commits to pursue reform

* Western powers to help Yemen in its fight against al Qaeda

By Samia Nakhoul

LONDON, Jan 27 (Reuters) - The Yemeni government recognises the need for urgent economic and political reforms to help fight al Qaeda militancy which risks threatening regional stability, according to a draft document at an international conference.

In the statement, obtained by Reuters ahead of London talks, major powers committed to supporting the Yemeni government which agreed to pursue discussions with the International Monetary Fund to tackle the poverty which is conducive to radicalisation.

British Prime Minister Gordon Brown called the meeting after a Yemen-based al Qaeda affiliate said it was behind a failed attempt to blow up a U.S.-bound plane with 300 people on board.

"The challenges in Yemen are growing and, if not addressed, risk threatening the stability of the country and broader region," the statement said.

"The government of Yemen recognises the urgent need to address these issues which will take sustained and focused engagement," the statement added. Yemen said it would pursue talks with the IMF as part of its reform programme.

The Dec. 25 attack drove home how al Qaeda could threaten Western interests from Yemen and highlighted the risk that it could become a failed state, compounding security challenges already posed by lawless Somalia just across the Gulf of Aden.

About 42 percent of Yemen's 23 million people live on less than $2 a day, the World Bank says. The population is set to double in 20 years, but jobs are already scarce and water resources are collapsing, making it easier for militant groups such as al Qaeda to recruit disenchanted youths.

"FRAGILE STATE"

Wednesday's London talks, which bring together the Group of Eight world powers, Yemen's neighbours in the Gulf Cooperation Council, and Egypt, Jordan and Turkey, are intended to support Yemen, while pushing for economic development and reform.

The European Union, United Nations, World Bank and the IMF will also be represented.

"Yemen is not a failed state but it's an incredibly fragile state," British Foreign Office Minister Ivan Lewis said in a video on a government website.

"We want to get in there early to offer assistance and to prevent Yemen becoming a failed state," he said.

The meeting, scheduled to start at 1600 GMT and last just two hours, would focus on helping the Yemeni government move its economy forward, creating jobs and improving health, education and law and order, he said.

Western delegates will also be pushing Yemen to tackle corruption.

A donors' meeting in London in 2006 pledged about $5 billion for Yemen but only a small portion has been disbursed, partly because of concerns about how the money would be spent.

Yemen has declared war on al Qaeda under pressure from Washington and Saudi Arabia, its oil-producing neighbour and its main aid donor along with the United States.

Apart from al Qaeda, Yemen faces a Shi'ite Muslim revolt in the north, a secessionist movement in the south, water shortages, falling oil income and weak state control.

Secretary of State Hillary Clinton will head the U.S. delegation. Many of the ministers will also take part in a major international conference on Afghanistan on Thursday.

Britain raised its terrorism threat level after the failed Detroit attack to "severe", meaning an attack in Britain is considered highly likely, and has suspended direct flights from Yemen. Security will be intense for this week's meetings. (Writing by Keith Weir, editing by Peter Millership)