Yemen President Abed Hadi, an ally of the U.S. in the Arab Peninsula, resigned on Thursday, prompting the resignation of Prime Minister, Khaled Bahah, and the  entire government. The moves came after a  U.N. brokered agreement failed to break the two-day siege of the presidential palace by the Houthis, the same group that seized the Yemen capital in September.

The U.S. State Department has not ordered evacuation of the American Embassy in the  capital of Sanaa, although the Navy has positioned two warships in the Red Sea in case conditions deteriorate. A company of Marines are on stand-by should evacuation become necessary to protect U.S. personnel. State Department spokeswoman, Jen Psaki, bristled at the word “anarchy” when a reporter asked for comment on the coup, stating that the U.S. is “assessing the situation for confirmation and seeking a peaceful transition.”

The Houthis, whose name means “Partisans of God,” adhere to a branch of Shia Islam, Zaidism, centered in their traditional homeland in the northwest of Yemen bordered by the Red Sea to the West and Saudi Arabia to the north. The sect has been involved in a decade-long conflict with the Yemen government demanding increased rights, more representation, and better economic policies for their region.

The Houthis are supported by Iran, declared enemies of al-Queda  and anti-American. Their motto is: “Death to Israel, Death to America,” however, the U.S. undersecretary of Defense for Intelligence, Michael Vickers, indicated there may be room for cooperation with the rebels. Speaking on Wednesday, he said, “The Houthis are anti-Al-Qaeda, and we’ve been able to continue some of our counterterrorism operations against Al-Qaeda in the past several months.”

The coup presents a particularly difficult development for President Obama occurring just months after he declared U.S. involvement in the poor, but geographically strategic, country a success that would serve as a model for training allies in Syria to fight ISIS (Islamic State in Iraq and Syria).

The U.N. announced a brokered agreement on Wednesday, by which the rebels would agree to end the siege at the presidential palace in return for the Yemeni president’s assurance that the Houthis would be included in the drafting of a new constitution. The agreement failed when the Houthis objected to government plans to divide the country into six regions, and the rebel group maintained its armed presence at the palace on Thursday, finally forcing Hadi to resign.

The U.S. has conducted air and drone strikes against al-Queda in northern Yemen, and supported anti-al-Queda ground operations by the Yemeni government with an estimated $1 billion in military, economic and humanitarian aid in the past four years. As the aid was channeled by the Hadi government to fighting the Houthis in the north, al-Queda was able to establish itself in the south of the country at the tip of the Arab Peninsula.

David Sedney, who headed up the Pentagon office responsible for Afghanistan, Pakistan and central Asia from 2009 to 2013, said on Tuesday that America’s “short-term success was never accompanied by a long-term strategy, and the result has been horrific” noting that Yemen is “dominated by groups with diverse ideologies who share a common theme — they hate the U.S. and see us as supporters of a decrepit, oppressive, and corrupt leadership.”

The seizure of the capital city by the Houthis in September was initially seen by many of the country’s 25 million people as a way to address serious issues of corruption, but as the rebels have taken over more territory, that support has floundered.

President Obama did not mention the ongoing siege at the presidential palace during his annual State of the Union address on Tuesday night.