By Katie Paul and Rania El Gamal
DUBAI (Reuters) - Saudi Arabia is defying U.S. calls to mend ties with Qatar despite signs that pressure to end another regional crisis, the Yemen war, has had an impact on Riyadh since the killing of a prominent journalist.
Jamal Khashoggi's murder at the Saudi consulate in Istanbul on Oct. 2 caused a global outcry, opened Saudi Arabia to the possibility of sanctions and damaged the image of Crown Prince Mohammed bin Salman.
Washington believes it has more influence over Riyadh as its ally tries to repair the damage to the kingdom's standing, and wants to use this leverage to end the Yemen war and rebuild Gulf unity against Iran, four sources familiar with the matter said.
On one front, there is movement.
In an apparent response to U.S. and British pressure for a ceasefire in Yemen by the end of this month, the Saudi-led coalition fighting Iran-aligned Houthi rebels halted an offensive on the main port city of Hodeidah on Thursday.
Maintaining pressure on Riyadh, Washington imposed sanctions on 17 Saudi officials for their role in Khashoggi's killing later on Thursday, and U.S. senators introduced draft legislation which, if it became law, would suspend arms sales to Saudi Arabia over the journalist's death and the Yemen war.
Saudi authorities did not respond to requests for comment. A U.S. State Department spokeswoman said Washington had been calling for a resolution throughout the Qatar and Yemen crises.
"We continue to engage on both of these issues with our partners in the region, including Saudi Arabia," the spokeswoman, Heather Nauert, said.
"Gulf unity is essential to our common interests of confronting Iran’s malign influence, countering terrorism, and ensuring a prosperous future for all of our Gulf partners."
QATAR RIFT RUNS DEEP
The United States sees Saudi Arabia as a crucial player in the efforts to build unity in the Gulf to contain Iran's influence in the Middle East, and Secretary of State Mike Pompeo visited Riyadh soon after Khashoggi's killing.
But Washington sees the Yemen war as a destabilising factor in the region and wants an end to the conflict, which has killed more than 10,000 people and pushed Yemen to the brink of famine.
Saudi Arabia and its ally, the United Arab Emirates, also now have reasons to exit the war as it has proved costly and reached stalemate.
Since the death of Khashoggi, a Saudi national and U.S. resident who was critical of the Crown Prince, U.S. officials have also sought to sway Riyadh over its row with Qatar.
Gulf unity, which Washington considers a bulwark against Iran, was shattered when Saudi Arabia, the UAE, Bahrain and Egypt severed trade and transport ties in June 2017, accusing Doha of supporting terrorism and Iran -- charges Doha denies.
"They are seizing the opportunity to try to end the Qatar dispute," a source with knowledge of U.S. policy said.
Washington had wanted Gulf unity restored, to help contain Iran's influence in the region, before new sanctions went into force against Tehran over its nuclear programme on Nov. 4, two of the sources said.
Western hopes that Riyadh might mend ties with Doha had been raised by a comment Prince Mohammed made on the strength of Qatar's economy at an investment forum on Oct. 25.
But diplomats and Gulf sources say they have seen no new ideas or concrete moves by Riyadh or its allies to end the row with tiny but wealthy Qatar.
"I don't see any change on Qatar. The crown prince's message was interpreted wrongly. He was sending a message to America ... 'Don't get worried about Qatar because you still have a strong economy in Qatar'," one Arab diplomat told Reuters.
Each of the boycotting countries is an ally of Riyadh and has longstanding political and security differences with Qatar.
A Gulf source said Prince Mohammed, known as MbS, would avoid any move that could be interpreted as weakness as he tries to recover from the diplomatic fallout over Khashoggi.
Riyadh offered contradictory explanations for Khashoggi's disappearance before saying he was killed in a rogue operation. King Salman, who stepped in to defuse the crisis, has stood by his chosen heir, in whose hands he has concentrated power.
CONTAINING THE CRISIS
Kuwait said this month there was a "positive view to contain the Gulf crisis," and a source familiar with U.S. policy said diplomats were putting forward a plan on Qatar.
But neither side seems ready to cede ground.
Qatar's foreign ministry spokeswoman said last month that Khashoggi's death should serve as a "wake-up call". Qatar Airways Chief Executive Akbar al-Baker said on Tuesday he did not expect a thaw soon.
"I am very pessimistic about this. With the current (Saudi and UAE) leadership I don't see that there is any way that things may be loosened up," he told reporters. "The only face-saving way for them to get out is to apologise."
Abu Dhabi says the dispute is not a priority, according to three diplomats and other sources familiar with Gulf policy.
"The Qataris are raising the price for resolving the crisis," said one Western diplomat. "The Emiratis are happy to keep the Qataris isolated."
Qatar and UAE authorities did not respond to requests for comment.
Riyadh and Abu Dhabi continue to reassure Washington that the dispute will not deter the formation of a proposed Middle East security alliance, which would include Doha, diplomats said.
They said the UAE still strongly supports MbS against Iran and on his economic and social reforms, seen by Abu Dhabi as essential to replicating the UAE model of a business-friendly, tolerant Muslim society to combat extremism.
"The Emiratis see Saudi Arabia as the only choice to lead the region. They haven't blinked in their belief that Riyadh's reform plans are the best and only option," said Elizabeth Dickinson, Senior Analyst for the Arabian Peninsula at the International Crisis Group.
(Additional reporting by Stephen Kalin in Riyadh, David Brunnstrom in Washington, Dmitry Zhdannikov in London, Belén Carreño in Madrid, Eric Knecht in Doha and Ghaida Ghantous in Dubai; Writing by Ghaida Ghantous; Editing by Timothy Heritage)