Rural development planning in Yemen suffers from a lack of integrated analysis and monitoring to combine natural resource and land use indicators with socioeconomic data. This paper takes a first step in this direction by undertaking an integrated assessment of the constraints and opportunities for agricultural development in rural areas. The analysis includes an assessment of the biophysical environment in a selected study site; a description of rural livelihoods based on household data; and an assessment of rural institutions. Taken together, the findings yield a coherent assessment that water scarcity is the main constraint facing rural development in Yemen’s rain-fed highlands; that this key constraint is further exacerbated by changes in the social structure and livelihood strategies of households such as seasonal male migration; however, lastly, we find that rural institutions offer a strong mechanism for participatory development that could support natural resource management and rural development.