Relations between North Yemen and South Yemen grew increasingly conciliatory after 1980. Border wars between the two countries in 1972 and 1979 both had ended surprisingly with agreements for Yemeni unification, though in each case the agreement was quickly shelved. During the 1980s the two countries cooperated increasingly in economic and administrative matters. In December 1989 their respective leaders met and prepared a final unification agreement. On May 22, 1990, North and South Yemen officially merged to become the Republic of Yemen. Ali Abdullah Saleh, then leader of North Yemen, became president of unified Yemen, while Ali Salem al-Beidh and Haydar Bakr al-Attas of South Yemen became vice president and prime minister, respectively. Sanaa was declared the political capital of the Republic of Yemen, and Aden the economic capital. By the summer of 1990 more than 30 new political parties had formed in Yemen. Rising oil revenues and financial assistance from many foreign countries, including Iraq, Saudi Arabia, and the United States, brought hope that Yemen could begin to strengthen and expand its economy.

Iraq's invasion of Kuwait in 1990 and the events that followed in the Persian Gulf took a serious toll on Yemen's economy and newfound political stability. Yemen's critical response to the presence of foreign military forces massed in Saudi Arabia led the Saudi government to expel 850,000 Yemeni workers; the return of the workers and the loss of remittance payments produced widespread unemployment and economic upheaval, which led in turn to domestic political unrest. Bomb attacks, political killings, and violent demonstrations occurred throughout 1991 and 1992, and in December 1992 a rise in consumer prices precipitated riots in several of Yemen's major cities. Concern arose that declining economic and social conditions would give rise to Islamic fundamentalist activities in Yemen.

Political turmoil forced the government to postpone general elections, which were finally held on April 27, 1993, completing the Yemeni unification process begun three years earlier. The General People's Congress (GPC), the former ruling party in North Yemen, won 121 seats in parliament; the Yemen Socialist party (YSP), the former ruling party of South Yemen, won 56 seats; a new Islamic coalition party, al-Islah, won 62 seats; and the remaining 62 seats were won by minor parties and independents. The president and prime minister remained in office after the election, and the three major parties formed a legislative coalition.