* Yemeni forces say they killed 20 rebels
* Government says it rejects rebel ceasefire offer
* Top U.S. anti-terror official meets president, ministers
* Police thwart attempt to bomb pipeline
(Adds police foil attempt to blow up oil pipeline, paragraph 6)
By Mohammed Ghobari and Ulf Laessing
SANAA, Jan 31 (Reuters) - Yemen rejected a ceasefire offer from Shi‘ite rebels on Sunday and said there had been clashes with government forces, as neighbouring Saudi Arabia accused the insurgents of mounting sniper attacks inside its territory. The conflict with the northern rebels, who complain of social, religious and economic discrimination in the southern Arabian state, has rumbled on since 2004, but intensified last year and drew in Saudi Arabia.
Yemen is also struggling against al Qaeda and southern secessionists, and Western powers fear it could become a failed state.
A senior U.S. counter-terrorism official was in Yemen on Sunday, state media reported, a week after Britain hosted a conference on how to stabilise the Arab world’s poorest country.
Yemeni soldiers clashed with rebels in the northern provinces of Malahidh and Saada, killing 20, including a leader responsible for training, state media reported on Sunday.
Police on Sunday shot and injured a man trying to set up an explosive device near an oil pipeline in an area outside the capital Sanaa, the Interior Ministry said on its website. The suspect, a local resident, managed to escape, it said. Rebel leader Abdul-Malik al-Houthi said on Saturday he was prepared to accept government conditions for a truce, days after he made a ceasefire offer to Saudi Arabia and said his fighters had withdrawn from Saudi territory. [ID:nLDE60T0DV]
GOVERNMENT REJECTS TRUCE OFFER
But a government official said on Sunday: "The Houthi offer is rejected as it does not vow to end attacks on Saudi Arabia and because it sets as a condition an end to military operations (by the government) first."
The rebels said they would accept five conditions set by Sanaa for a ceasefire that include the removal of rebel checkpoints, withdrawal of forces and clarification of the fate of kidnapped foreigners.
The government says the rebels must also return captured military and civilian equipment and stay out of local politics.
But the Houthis made no mention of the sixth condition, the ending of attacks on Saudi Arabia, which Sanaa added after Riyadh launched an assault against the rebels in November.
"This is a key demand we cannot make concessions on," Tarek al-Shami, a spokesman for Yemen’s ruling party, told Reuters.
Yemen would "see no obstacle" to ending its military operations if the rebels committed themselves to all six points, the National Defence Council said in a statement.
A Saudi military source said rebel snipers were still crossing the border into Saudi Arabia and exchanging fire with its troops daily, nearly a week after the rebels said they would withdraw from Saudi territory.
The rebels said on Thursday that Saudi air and artillery attacks had continued despite a truce offer.
Riyadh declared victory over the rebels on Wednesday following the ceasefire offer from the insurgents.
Riyadh demanded that rebels take three steps to prove they wanted to end hostilities: withdraw rebel snipers, return six missing Saudi soldiers and pull back further from the border to create a buffer zone inside Yemen secured by the Yemeni army.
Saudi Arabia was drawn into the conflict in November, after they seized some Saudi territory. The rebels accused Saudi Arabia of allowing Yemeni forces to use its territory to launch attacks against them.
The Yemeni Defence Ministry’s online newspaper said the rebels, known as the Houthis after the name of their leader, had opened fire on a refugee camp, killing a child and wounding two others. There was no response from the rebels to the report.
Britain hosted talks in London last week where countries including the United States discussed ways to stabilise the Arabian Peninsula state, which grabbed the world’s attention after the Yemen-based regional command of al Qaeda claimed a bomb attempt on a U.S.-bound plane on Dec. 25.
Yemen, trying to reduce subsidies in reforms backed by the International Monetary Fund., raised prices of gasoline, diesel and kerosene up to 14.3 percent on Sunday. [ID:nLDE60U0HC]
In 2005, the government reversed fuel price rises after 22 people were killed and more than 300 wounded in riots sparked by the hikes.
Yemen’s President Ali Abdullah Saleh, its foreign minister and other senior officials met Daniel Benjamin, the U.S. State Department’s coordinator for counter-terrorism.
"They discussed counter-terrorism and ways to cooperate between the United States and Yemen, especially in the military, security and development areas," a senior official told Reuters. (Additional reporting by Mohamed Sudam; writing by Raissa Kasolowsky and Firouz Sedarat; editing by Myra MacDonald)