Our correspondent said fighting broke out again on Sunday.
At least 51 supporters of the Zaidi Shia cleric Husain al-Huthi have been killed by government troops besieging them in mountainous northern Yemen since 20 June. More than 50 have been arrested.
Sources close to al-Huthi say the death toll was higher and put it at about 200. Security sources say seven policemen have also died and five have been wounded.
"Al-Huthi refused the mediation, accused some mediators of atheism and insisted on what he described as 'revolting' against the Yemeni government", a Yemeni source told our correspondent.
Yemeni authorities believe al-Huthi, a leader of the Zaidi Shia sect in the northern province of Saada, is also head of the group The Believing Youth. The group has led protests against the United States and Israel at mosques, security sources say.
The Interior Ministry said late on Saturday that the government was targeting al-Huthi because he had set up a militia in secret, cut off roads and attacked mosques and preachers in Saada, 240km north of capital Sanaa.
Anti-US sentiment is high in the region over the US-led occupation of Iraq and the Israeli-Palestinian conflict. Some clerics in Yemen are fiercely critical of the US and the West.
The government of the poor country of 19 million people claims al-Huthi has incited sectarian strife and spread "deviant" thought and "extremist ideology" which harms Yemen's unity and security.