FP’s Situation Report: President Obama reluctantly takes on the Islamic State fight; Obama faces lingering and difficult foreign policy challenges; A key U.S. ally in the Middle East is in peril in Yemen; and much more from around the world.

By David Francis with Sabine Muscat

President Barack Obama used the I-word — Iraq — only twice in last night’s State of the Union. But he boasted of stopping the Islamic State’s advance there and in Syria. FP’s Kate Brannen: “[T]he president’s view is that by sticking to airstrikes and keeping U.S. troops solely in a training mission, rather than a combat one, the U.S. can avoid getting ensnared in a potentially long and bloody ground war.”

Obama still faces a slew of foreign policy challenges in the twilight of his presidency. The president still has yet to close the prison at Guantánamo Bay. The Islamic State is far from defeated. And Congress is still threatening to undermine nuclear talks with Iran. Foreign Policy staff: “Obama will confront a topsy-turvy political landscape where Republicans may be his closest allies on some issues while Democrats openly revolt against him on others.”

More on the State of the Union below.

U.S. ponders when to call a coup a coup in Yemen. The Shiite Houthi rebellion stormed the presidential residence in Sanaa, and on Wednesday claimed they captured Yemen’s President Abed Rabbo Mansour Hadi. FP’s David Francis: Nearly a quarter billion dollars in aid is at stake, and Hadi’s disappearance represents a new blow to American anti-terror efforts —  particularly against Yemeni-based AQAP.

More on Yemen below.

Press Pack: SOTU reax

The Washington Post: “President Obama, who took office six years ago amid a historic recession and two U.S. wars, declared unequivocally Tuesday that the nation had clawed its way out of those dire straits.”

The New York Times: Obama “defiantly told his Republican adversaries in Congress to ‘turn the page’ by supporting an expensive domestic agenda aimed at improving the fortunes of the middle class.”

The Wall Street Journal: Congressional Republicans “want to advance their own solutions aimed at spurring economic growth for all income groups.”

Welcome to Wednesday’s edition of the Situation Report, where we also chuckled during the brief SOTU back-and-forth over Obama’s campaign history.

E-mail me at david.francis@foreignpolicy.com to subscribe to the Situation Report and get the global security news you need to start your day. Like what you see? Tell a friend. Don’t like what you see? Tell me. And send me tips, reports, or anything else the world needs to know and I’ll try to include it. Follow me: @davidcfrancis.

Who’s Where When Today

8:30 a.m. The Brookings Institution hosts a daylong event on “Looking Ahead: Next Steps for the Deepening Australia-U.S. Alliance in the Asia-Pacific” with a 1:15 p.m. keynote from Christine Wormuth, under secretary of defense for policy. 9:00 a.m. The International Monetary Fund holds a press conference on the impact of low oil prices in the Middle East and Central Asia. 9:30 a.m. Former national security advisers Brent Scowcroft and Zbigniew Brzezinski testify on global challenges and U.S. national security strategy at a Senate Armed Services Committee hearing. 1:00 p.m. Secretary of State John Kerry and the EU High Representative on Foreign Policy Federica Mogherini hold a press conference following their closed lunch at the State Department. 2:30 p.m. House Science Committee holds a hearing to review the FAA’s and NASA’s research and development on drones and their integration into the National Airspace System. 3:00 p.m. U.N. Security Council holds a briefing on Ukraine. 3:15 p.m. Secretary Kerry meets with Australian Foreign Minister Julie Bishop. 4:45 p.m. The Center for Strategic and International Studies hosts an event on “Securing Cyberspace: A Discussion on the Sony Hack Plus the Latest Threats.”

What’s Moving Markets

Writing for Foreign Policy, Phil Levy warns the U.S. economy is not out of the woods yet.

The New York Times’ Quentin Hardy and Conor Dougherty on Google’s bet on space.

The Economist’s S.R. on how China’s economic slowdown signals a healthy trend.

Writing for Foreign Policy, Philippe Legrain on Europe’s struggle to stimulate economic growth: here.  

Davos Daily

As the World Economic Forum opens today, FP’s Isaac Stone Fish tells us which China stories to keep an eye on.

The Financial Times’ Shannon Bond on a global loss of trust in public institutions, according to a poll that will be presented at Davos.

The Wall Street Journal’s Charles Forelle on the persisting financial crisis in Europe.

Yemen

The Washington Post’s Ali al-Mujahed and Hugh Naylor reports Hadi was pinned down by an assault on his residence, about three miles from the palace.

NBC News: “U.S. prosecutors have charged two Yemeni nationals with being members of al Qaeda who attacked American forces in Afghanistan.”

Islamic State

The Hill’s Justin Sink on reaction to the video of Japanese hostages.

The New York Times’ Nick Cumming-Bruce: The United Nations accuses Islamic State extremists of carrying out “scores of execution-style killings in Iraq this month.”

The Canadian Press on engagement with the Islamic State: “Canadian soldiers opened fire on enemy positions in Iraq over the last week in what a senior officer called an act of self-defence.” More here.

The New York Times’ Thomas Erdbrink on Tehran’s vow of revenge by “destructive thunderbolts” for an Israeli helicopter strike that killed an Iranian general at the Syrian border with Syria.

The Guardian’s Peter Beaumont: “Israel was apparently unaware” that the Iranian general was part of the Hezbollah convoy the helicopter strike targeted.

Paris Attacks

The Wall Street Journal’s Sam Schechner on French and German demands that Twitter Inc., Facebook Inc. and Google Inc. and other U.S. Internet and social-networking companies remove terror content from their services.

Reuters on the new arrests of five Chechens in southern France on suspicion of preparing an attack.

FP’s Siobhán O’Grady on the mayor of Paris’ threatened lawsuit against Fox News after it ‘insulted’ her city following the Charlie Hebdo attacks.”

Russia

The Wall Street Journal’s Thorold Barker and Alan Cullison interview Ukraine’s hopeful president.

The Washington Post’s Karoun Demirjian on intensifying battles, mounting death tolls and new accusations of Russian interference in eastern Ukraine.

Cyberwar

The Guardian’s Ewen MacAskill on a newly-proposed surveillance compact between internet companies and the security services in the UK and US as a result of the Snowden revelations.”

Nigeria

Reuters’s Julia Payne on Boko Haram’s plans to carve out its own territory “that will revive the glory days of northern Nigeria’s medieval Muslim empires” despite “a litany of killings, kidnappings, hunger and economic collapse.”

Torture Report

The New York Times’ Mark Mazzetti on enhanced interrogations: “[A]n internal review by the agency found that the C.I.A. had repeatedly overstated the value of intelligence gained during the brutal interrogations of some of its detainees.”

The Washington Post’s Greg Miller: New Senate Intelligence Committee Chair Richard Burr wants the Obama administration to return copies of the so-called CIA torture report, apparently in hopes of keeping the full version rom being released to the public.

North Korea

The New York Times’ Choe Sang-Hun on Pyongyang pushing back on U.S. concerns over human rights abuses.

Cuba

The New York Times’ Randal C. Archibold on what Fidel Castro called a “nest of spies”: “a full-fledged embassy operating in the open for the first time in more than five decades.”

The Chicago Tribune’s Katherine Skiba on concerns that just a single U.S. senator could scuttle plans to fully lift the embargo against Cuba.

AFP on a Russian intelligence ship visiting Havana one day before historic talks begin with the United States.

Afghanistan

Tolo News’s Saleha Sadat reports Afghan President Ashraf Ghani is pushing to boost domestic industrial growth.

Service Check

The Washington Post’s Dan Lamothe on Marine redeployments of Special Operations troops to the Middle East to refocus after years of fighting in Afghanistan.

Bloomberg’s Tony Capaccio on flaws with the Navy’s signature Littoral Combat Ship.

Revolving Door

The Hill’s Megan R. Wilson: Squire Patton Boggs hires former Rep. Jim Matheson (D-Utah) as a principal in the firm’s public policy practice based in Washington.

The Washington Business Journal’s Jill R. Aitoro: “Vienna-based FedBid Inc., which helps agencies buy goods and services through a bidding process from contractors, announced that Public Sector President Joe Jordan has assumed the role of CEO, effective Jan. 1.” here.

And finally!

FP’s Elias Groll on a second witness to an unfolding mystery in Sweden: “[A]nother witness has come forward to say that he too saw a submarine on Oct. 31, exactly a week after the Swedish Navy ended a massive search for what was widely believed to be a Russian submarine.”