Yemeni President Ali Abdullah Saleh has announced plans to change the constitution to move to a parliamentary system.
In a live televised address, he said a referendum would be held this year on measures including a new election law.
The pledge comes after weeks of protest against his 32-year rule left about 30 people dead.
But opposition groups say the move comes too late and the demands of protesters are "bigger than that".
Protesters have dismissed Mr Saleh's earlier promise not to seek re-election after his current term ends in 2013.
Separation of powers
State television broke regular programming to carry Mr Saleh's speech, made to a large crowd of supporters gathered in the capital, Sanaa, in which he pledged "a new initiative to avoid sedition".
Mr Saleh, who has often ruled the country by decree, promised to introduce a new constitution which would guarantee the separation of the legislative and executive branches of government.
The president said the reforms meant that a "government elected by the parliament would take control of the country's executive powers". He also announced measures to speed up decentralising power in the country.
Mr Saleh urged the opposition to join him in a unity government to draw up the new constitution, on which a referendum would be held "before the end of the year".
He said he was "already sure that this initiative won't be accepted by the opposition" but that he would let the people decide "in order to do the right thing".
Shortly after, opposition spokesman Mohamed Qahtan rejected the president's initiative, saying it had come too late.
"The demands on the street go beyond that and are bigger than that," he said.
The Yemeni republic was created by the merger of North and South Yemen in 1990. Before that, Mr Saleh led the Yemen Arab Republic - the northern part of present-day Yemen - since 1978 when he came to power in a military coup. Direct presidential elections were first held in 1999.
Although nominally a multi-party system, Yemeni politics has been dominated by Mr Saleh's General People's Congress since unification.
Yemen is one of a number of countries in the North African and Middle East region that have seen increasing unrest since the presidents of Egypt and Tunisia were ousted in popular revolts earlier this year.
Thousands of people have turned out for regular demonstrations in cities including Sanaa, calling for corruption and unemployment to be tackled and demanding the president steps down.
The protests have often been met by riot police or supporters of President Saleh armed with knives and batons.
Two people were killed in fresh unrest on Wednesday and another mass rally is planned for Friday.
On Tuesday, security forces opened fire at a large protest outside the university in Sanaa. At least 80 people were injured, and one subsequently died of his injuries in hospital.
In his speech on Thursday, President Saleh promised to protect demonstrators.
"We have ordered the security forces to continue to provide protection for all the protesters, whether they are supporters of our legitimacy or from the opposition," he said.
The president faces a separatist movement in the south, a branch of al-Qaeda, and a periodic conflict with Shia tribes in the north.
Elsewhere in the region, Morocco's King Mohammed VI has promised to introduce "comprehensive constitutional reform" in an attempt to calm street protests.
The king said he would give up the power to name the prime minister, instead allowing one to be appointed by parliament, and would expand "individual and collective liberties".