"We slept and woke up to the non-stop sound of gunfire," one Sanaa resident told AFP as firefights between rival military units raged in the city centre earlier in the day.
"More than 40 people were killed on Saturday" in battles that hit several neighbourhoods across Sanaa, including Change Square, epicentre of anti-regime protests, an activist from the protest organising committee said.
He said hundreds of others were wounded as the death toll spiralled to 173 people over the past week. State news agency Saba said 24 of Saleh's soldiers have also been killed.
As gunfire echoed across the capital, hundreds of thousands of people SET out in a massive march from Change Square, which itself came under fire from the security forces from several directions, witnesses said.
Flames leapt from shops and homes along Sanaa's central business avenue, witnesses said.
A dissident military spokesman said 11 of his division's troops were killed on Saturday and 112 wounded when elite Republican Guard troops, commanded by President Ali Abdullah Saleh's son Ahmed, attacked a camp of the First Armoured Brigade north of Change Square.
"The camp was targeted by 60 shells," said the spokesman.
Republican Guards have engaged in a week of clashes with dissident soldiers from the First Armoured Brigade headed by General Ali Mohsen al-Ahmar, who have protected anti-regime protesters camped out on Change Square.
Security forces have also been fighting supporters of dissident tribal chief Sheikh Sadiq al-Ahmar in Sanaa's northern Al-Hasaba district.
Saleh's troops killed at least 17 people in an attack just after midnight on Friday, shelling and firing on Change Square which protesters first occupied in February.
"Seventeen people were killed and 55 others were wounded," said Mohammed al-Qabati, a medic at the field hospital there.
Among the dead were dissident soldiers, while the rest were civilians, Qabati told AFP without providing specific figures.
Snipers also opened fire from buildings around the square, witnesses said.
Tens of thousands of people have remained camped in the square even after Republican Guards burned down tents, witnesses said.
In north Sanaa, fighting continued between Saleh's troops and Sheikh Sadiq supporters in Al-Hasaba, residents said.
Saleh returned to Yemen on Friday, preaching peace, after a three-month absence in Saudi Arabia, where he was treated for wounds sustained in a June 3 bomb attack on his palace.
As his supporters celebrated his return in Sabiin Square, near the palace, on Friday, Saleh's opponents attended the funeral of 40 of their "martyrs" and called for him to face trial.
"I have returned home carrying the dove of peace and an olive branch, not holding any grudges or hatred towards anyone," Saba quoted Saleh as saying.
He urged all Yemenis to "overcome their pain and wounds for the sake of the nation and its dignity."
A spokesman for the ruling General People's Congress party, Tariq al-Shami, told AFP "no public appearance or political activity" has yet been scheduled.
But Saba said the president would make "an important speech to mark the 49th anniversary" of the September 26, 1962 revolution that saw Yemen proclaimed a republic.
Saleh, who has been in power since 1978, traditionally makes his speech on the eve of the anniversary.
Even as the 69-year-old president called for a ceasefire and talks, the United States urged him to step down, with the White House calling on him to begin a "full transfer of power."
Arab Gulf foreign ministers condemned the violence and echoed the US calls urging Saleh to "immediately" sign a Gulf Cooperation Council transition plan that has been on the table for months.
They also called for "self-restraint, a complete and immediate ceasefire, and for forming a commission of inquiry in the latest events that have cost the lives of innocent Yemenis."
A senior Saudi official told AFP Saleh had returned from Riyadh to put his house "in order" and "prepare for elections."
Saleh will leave after this, the official added, without specifying whether he would leave Yemen altogether or only leave power.
But Yemeni analyst Abdulghani al-Iryani said he believed Saleh had returned to stay.
"He returned because he thinks that his military forces' situation on (the) ground has improved," said Iryani. "He came to impose a military solution."
He expressed concerns of a "full-scale war" that might erupt between forces loyal to Saleh and other dissident troops.
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