Protests that started in Tunisia and spread across the Middle East have resulted in the deaths of two people in Bahrain, where the opposition bloc in parliament defected in response. Farnaz Fassihi and Adam Horvath have details.

MANAMA, Bahrain—The Middle East’s wave of popular revolts helped spur the largest street rebellion in years in a Persian Gulf monarchy, and the first to pit a Shiite Muslim majority against Sunni rulers—heightening the dilemma for the U.S. as it struggles to pursue its interests in the region.

The funeral of a demonstrator here Tuesday swelled into growing clashes with security forces amid the gleaming new skyscrapers of this financial capital, which hosts the headquarters for the U.S. Navy’s Fifth Fleet patrolling the Gulf.

Bahraini youths demonstrate in front of the police in Manama.

The developments came as security forces in Yemen, an important ally in U.S. antiterrorism efforts, fought back protesters for a fifth day. In Iran, the government threatened leaders of Monday’s protests there with execution and made a fresh wave of arrests.

The parallel protests against key allies and enemies of the U.S. sharpened the difficulty for the Obama administration, as fast-moving uprisings have unseated regimes in Tunisia and Egypt and triggered opposition rallies in Algeria, Jordan and elsewhere.

WSJ’s Charles Levinson and Jerry Seib report on how public protests in Egypt have sparked protests throughout the Middle East, namely Bahrain, Libya, Algeria, Yemen and Iran.

The White House is trying to balance its desire to encourage what President Barack Obama called Tuesday “certain universal values” with U.S. strategic interests. The president and Secretary of State Hillary Clinton both offered encouragement to Iranian protesters and aimed tough words at Tehran on Tuesday, in marked contrast to their relative silence on Iran during the last wave of protests in Iran in 2009.

Mr. Obama praised the courage of protesters and said the Iranian regime was “pretending” to celebrate Egypt’s revolt while “gunning down and beating people who were trying to express themselves peacefully” at home.

Neither leader spoke Tuesday about the movements in Bahrain and Yemen, though the president was questioned about both during a news conference.

Later, State Department spokesman Philip Crowley put out a statement saying the U.S. is “very concerned” about the violence and is urging the regime to investigate protester deaths as quickly as possible. “We also call on all parties to…refrain from violence,” he added.

Bahrain is a tiny, island kingdom in the oil-rich Gulf best known for its banking prowess, along with bars that cater to nationals from alcohol-free Saudi Arabia next door. It pumps little crude itself, but the protests here have brought home to neighboring oil-rich capitals—Dubai, Abu Dhabi, Doha and Riyadh—a taste of the turmoil that had largely been limited to much poorer corners of the Arab world.

It’s also the first country experiencing the recent unrest in which the often-explosive sectarian divide between Sunni and Shiite Muslims has emerged in a meaningful way. Shiites make up small minorities in other recent hot spots, including Egypt, Jordan and Yemen, but religious tensions haven’t been a driving factor in unrest in those places.

A sustained Shiite uprising in Bahrain would alarm Sunni rulers in Saudi Arabia, Kuwait and the United Arab Emirates, all Gulf countries with sizable Shiite minorities. They worry about the unrest spilling across their borders, and the possibility Iran would have more opportunities to meddle in the region. Gulf rulers are often quick to blame Iran for instigating trouble among Shiite populations, though real Iranian influence in those communities has been limited.

Some U.S. officials believe if the current government fell in Yemen, U.S. operations in the country could be hamstrung. Those operations include training commandos and conducting counter-terrorism strikes. Yemen is the home to al Qaeda in the Arabian Peninsula, and officials say a collapse of the weak government could give the group free rein.

Likewise, the Obama administration fears unrest in Bahrain could undercut U.S. interests in a region where a significant chunk of the world’s oil is produced and transported each day. Although it lacks oil, Bahrain’s housing of the U.S. Navy’s Fifth Fleet make it a critical port for the Navy vessels deployed to counter Iran and protect the Persian Gulf.

If Bahrain’s Sunni-led government were to be forced from power—something protesters haven’t yet made a focus of their demands—some fear a new government might seek closer ties to Iran and force the U.S. Navy to relocate. Another concern is that an uprising in Bahrain could spill into next-door Saudi Arabia or Kuwait, where even minor unrest might roil world-wide oil markets.

“The goal is to press to reform these governments, not remove them, where our national security is at stake,” Christopher Boucek, a Middle East analyst at the Carnegie Endowment for International Peace in Washington.

The split U.S. imperatives also were on display in the Egyptian revolt, when the administration initially tried to encourage peaceful protests while urging the government of Hosni Mubarak—a longstanding U.S. ally—to survive by meeting some demands.

Bahrain’s Sunni Muslim rulers have long faced a restive Shiite population that alleges economic and political discrimination. Shiite leaders have pushed, sometimes violently, for more political rights over the years, though they have stopped short of trying to remove the ruling family from power.

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Associated PressDemonstrators in the main square of Manama, Bahrain, Tuesday.

In response, the kingdom has liberalized more than most of its Gulf neighbors. While the ruling family still holds near-absolute power, a viable Shiite opposition has gained a growing voice in the country’s parliament, with 18 of 40 seats.

But parliamentarians from the Shiite bloc, called Al-Wafaq, on Tuesday suspended their participation in the body, in solidarity with the protesters. The move robs Bahrain’s government of a legitimate political party with which to negotiate a settlement.

When protests first broke out here Sunday evening, Bahrain security forces appeared unprepared. Many units fired tear gas canisters indiscriminately, often at close range and directly into crowds. Protesters quickly regrouped, and on Monday protests intensified, with security forces again cracking down hard. Police and protesters clashed in and around Manama most of the day.

On Tuesday, thousands of demonstrators gathered at the hospital where injured protesters were taken the day before, and mourned a young Shiite man that the hospital said had been killed by pellet wounds. Eyewitnesses said security forces shot the man at close range with pellets designed to disperse crowds.

As protesters escorted the dead man’s body for burial, security forces attempted to disperse crowds, eyewitnesses said. Police fired tear gas and more pellets. Tear gas filled part of the hospital’s accident and emergency ward, eyewitnesses said. A second man was killed, the interior ministry confirmed Tuesday.

Later, protesters held a funeral for the first man killed, in his home village. Then they marched back to Manama, joined by thousands on the way, eventually filling a six-lane highway into town.

A woman who identified herself as Naseema from Al-Daih, the Shiite village where the funeral was held, said the clashes between opposition Shiites and security forces had hardened protesters’ resolve. “We’re not afraid of their jails, we’re not afraid of death, we’re willing to give our own blood and our own sons,” she said, as she waited for afternoon prayers.

By midafternoon, protesters had occupied the Pearl roundabout, a landmark in Manama that forms a main intersection in the city’s financial district. Young men, many carrying Bahraini flags, used ladders to mount the stone sculpture in the center of the roundabout. Crowds sang songs of defiance and lifted banners, some in English, pledging “peaceful protest.” Passing cars tooted horns in support, while police helicopters circled overhead.

Some men helped direct traffic through the crowds, while others formed human chains in front of groups of female protesters. Demonstrators chanted antigovernment slogans, including “Mother, prepare my coffin, because I’m going to free my country.”

Bahrain’s King Hamad bin Isa Al Khalifa, in a rare TV address, offered condolences for the two deaths on Tuesday.

He promised a probe into the killings and into the security-services’ response to the protests, and pledged to make good on previous promises of reforms, including loosening media controls and providing special social welfare payments.

After nightfall, protesters set up camp with tents and carpets covering the roundabout and the six intersections abutting it. On a central sculpture hung a sign calling for the resignation of the prime minister.

Families ate picnics and smoked water pipes, while demonstrators passed out water bottles, hot tea and blankets.

Hundreds of cars were stopped along the roads leading into the roundabout, with well-wishers thronging to visit the site. Traffic that continued through the circle crawled ahead in a single lane.

“We will stay here until our demands are met,” said Hussein al Jaziri, who returned to Bahrain a year ago from Australia, but has yet to find work.

“It’s different this time,” he said, comparing Tuesday’s protests to previous demonstrations against the government. “The regime is scared.”