* UAE-backed Yemeni forces battle Houthis in key regions
* Raid would mark escalation in regional hostilities
* Most Houthi drone attacks were aimed at Saudi Arabia
* Saudi Arabia, Bahrain condemn "cowardly" attack
* Abu Dhabi trying to improve ties with Iran (Adds UAE foreign ministry statement)
By Ghaida Ghantous and Alexander Cornwell
DUBAI, Jan 17 (Reuters) - Yemen's Iran-aligned Houthi group attacked the United Arab Emirates using drones on Monday, setting off explosions in three fuel trucks and causing a fire near the airport of Abu Dhabi, capital of the region's commercial and tourism hub.
The strike on a leading Gulf Arab ally of the United States takes the war between the Houthi group and a Saudi-led coalition to a new level, and may hinder efforts to contain regional tensions as Washington and Tehran work to rescue a nuclear deal.
"The UAE condemns this terrorist attack by the Houthi militia on areas and civilian facilities on Emirati soil...(It) will not go unpunished," the foreign ministry said in a statement. "The UAE reserves the right to respond to these terrorist attacks and criminal escalation."
The UAE, a member of the coalition, has armed and trained local Yemeni forces that recently joined fighting against the Houthis in Yemen's energy-producing Shabwa and Marib regions.
The Houthi movement has frequently launched cross-border missile and drone attacks on Saudi Arabia, but has claimed few such attacks on the UAE, mostly denied by Emirati authorities.
"With (nuclear) negotiators running out of time, the risk of a deterioration in the region's security climate is rising," said Torbjorn Soltvedt, Principal MENA Analyst at risk intelligence company Verisk Maplecroft.
Three people were killed and six wounded when three fuel tanker trucks exploded in the industrial Musaffah area near storage facilities of oil firm ADNOC, state news agency WAM said. It said those killed were two Indians and a Pakistani.
ADNOC later said an incident at its Mussafah Fuel Depot at 10:00 am local time had resulted in a fire and that it was working with authorities to "determine the exact cause".
"ADNOC is deeply saddened to confirm that three colleagues have died. A further six colleagues were injured and received immediate specialist medical care," it said in a statement.
Police closed the road leading to the area, where unverified footage on social media had shown thick black smoke.
"Initial investigations found parts of a small plane that could possibly be a drone at both sites that could have caused the explosion and the fire," Abu Dhabi police said.
An Etihad Airways spokesperson said a small number of flights were briefly disrupted at Abu Dhabi airport due to "precautionary measures", but normal operations quickly resumed.
The Houthi's military spokesman said the group launched a military operation "deep in the UAE". Its chief negotiator, Mohammed Abdulsalam, whom Houthi-run media said was currently visiting Tehran, warned the UAE against "tampering in Yemen".
The Houthi strike could potentially derail UAE and wider Gulf dialogue with Iran, said UAE political analyst Abdulkhaleq Abdulla.
"The UAE is not going to take this very lightly," he said, adding it was still too early to assess Abu Dhabi's response.
PROXY FIGHT
Riyadh and Abu Dhabi had moved to engage https://www.reuters.com/world/stuck-middle-uae-walks-tightrope-between-us-israel-iran-2021-12-12 directly with Iran in recent months to avoid any wider conflict that could hurt regional economic ambitions. The Yemen war is seen as a proxy fight between Sunni Muslim Saudi Arabia and Shi'ite Iran.
The Abu Dhabi stock market index ended 0.1% lower after the news. The index had gained as much as 0.3% in early trade.
The attack coincided with a visit to the UAE by South Korean President Moon Jae-in. A Blue House official said a summit between Moon and Abu Dhabi's crown prince was cancelled.
Given the range of Houthi attacks against Saudi Arabia it was not "technically surprising" the group would be able to hit UAE targets, said Jean-Loup Samaan, senior research fellow at National University of Singapore's Middle East Institute.
Saudi Arabia and Bahrain condemned what they described as a "cowardly, terrorist" attack. There was no immediate comment from Iranian officials, but Iran's Tasnim news agency reported it as an "important operation". (Additional reporting by Maha El Dahan, Ahmad Elhamy, Mahmoud Mourad, Lisa Barrington, Aziz El Yaakoubi, Saeed Azhar, Raya Jalabi, Parisa Hafezi, Hyonhee Shin and Moataz Mohamed; Editing by William Maclean)
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