By Maria Golovnina and Michael Georgy
TRIPOLI (Reuters) - A Libyan fighter said rebels had retaken the heart of the closest city to the capital from forces loyal to Muammar Gaddafi on Wednesday evening in some of the fiercest fighting in almost three weeks of clashes.
Zawiya appeared to change hands twice during the day as Gaddafi tried to crush the uprising against him by bombarding the western town and a series of oil towns in the rebel-held east.
"Thanks to Allah we are sitting in the square now," the fighter, who gave his name as Ibrahim, said by telephone after earlier reporting his forces had pulled back from the square.
"This is a death or life battle for us, we have nothing to do now but to fight him," he said.
A doctor in the town said earlier many dead lay in the streets, including old people, women and children, with at least 40 killed, probably many more. He also said the rebels had been driven from the center earlier in the day.
Al Jazeera television said several members of Gaddafi's forces were killed in Zawiyah, including a general and colonel.
The counter-offensive by Gaddafi has halted the rebels' advance in the east, where they were forced to withdraw from the frontline town of Bin Jawad after coming under heavy shelling.
"We came into Bin Jawad but gunboats fired on us so we withdrew," one fighter, Adel Yahya said.
Rebel Colonel Bashir Abdul Qadr appeared unsure whether naval vessels had been used: "We had bombing from the direction of the sea," he said.
At the same time, the Libyan government appeared to be putting out feelers toward western governments who have tried to isolate Gaddafi with financial sanctions and are discussing further measures to try to stop the violence and force him out.
Libyan government emissaries appeared to have flown to Brussels to talk to European Union and NATO officials meeting on Thursday and Friday, Italian Foreign Minister Franco Frattini said, suggesting the situation was very fluid.
A Gaddafi envoy met Portugal's foreign minister on Wednesday to explain Tripoli's view of the conflict, the Portuguese Foreign Ministry said. There were no details of the kind of message the emissaries were bringing.
Rebels in the east faced a new barrage of artillery fire on their desert frontline outside the oil port of Ras Lanuf.
Dr. Gebril Hewadi of the Benghazi medical management committee told Reuters television at least 400 people had been killed in eastern Libya since clashes began there on February 17, with many corpses yet to be recovered from bombing sites.
An engineer working from the Bin Jawad port told Al Jazeera he had seen Gaddafi's warplanes strike the facilities, including destroying four storage tanks and power and water plants, the first time oil facilities have been hit.
Libya's top oil official said the unrest had cut output to about half a million barrels per day from 1.6 million, but the oil industry was still centrally coordinated. [ID:nLDE7282LJ] Brent crude oil rebounded toward $116 a barrel, renewing fears global economic recovery could be hit. [ID:nL3E7E90A6]
The eastern rebels renewed an appeal for outside powers to impose a no-fly zone to at least shield them from air attacks.
U.S. Secretary of State Hillary Clinton made it clear imposing a no-fly zone was a matter for the United Nations and should not be a U.S.-led initiative.
The White House said, however, it felt a U.N. arms embargo on Libya contained the flexibility to allow the rebels to be armed if such a decision were made. Earlier this week the State Department said it believed the rebels could not be armed.
It was the latest in a series of mixed messages from Washington which has fueled criticism of the administration.
Gaddafi has said he would die in Libya rather than flee. But that has failed to stem speculation on his plans.
A Libyan-born analyst said Gaddafi's inner circle had approached countries in Africa and Latin America about providing him refuge in the event he had to flee.
"It's provisional, it's a testing of the waters, it's just preparing for the future," said Noman Benotman, who has contacts among Libyan security officials. "It may also be a deception, to try to unsettle the international community. But the contacts definitely happened."
The government promised several times to escort foreign journalists into Zawiyah, 50 km (30 miles) west of Tripoli, on Wednesday but repeatedly called off the planned visit.
A Tunisian man who crossed the border on the way from Tripoli to Tunis in mid-afternoon said Zawiyah was encircled and the sound of explosions could be heard.
"The road was okay until we got close to Zawiyah. They've encircled the city and dug up the road leading to it so nobody can come in or out of Zawiyah," said Bachir al Tunesy.
CASULATIES AND REFUGEES
Rising casualties and threats of hunger and a refugee crisis have increased pressure on foreign governments to act, but many are wary of moving from sanctions alone to military action.
"We want to see the international community support it (a no-fly zone)," Clinton told Sky News. "I think it's very important that this not be a U.S.-led effort."
British Prime Minister David Cameron and U.S. President Barack Obama agreed in a telephone call to plan possible actions including surveillance, humanitarian assistance, enforcement of the arms embargo, and a no-fly zone.
Britain and France want a U.N. resolution on a no-fly zone, which would mean any Libyan government aircraft would risk being shot down by foreign forces. U.N. Security Council permanent members Russia and China are cool to the idea, which could entail bombing Libyan air defenses as a first step.
Rebels on the frontline between the rebel-controlled east and Gaddafi's forces in the west are increasingly frustrated at the failure of Washington and the West to act.
"We will complete our victory when we are afforded a no-fly zone," Hafiz Ghoga, spokesman for the rebel National Libyan Council, said in the rebel base of Benghazi. "If there was also action to stop him (Gaddafi) from recruiting mercenaries, his end would come within hours."
Gaddafi has said rebels were drug-addled youths and al Qaeda-backed terrorists. One of his sons said if Gaddafi bowed to pressure and quit, Libya would descend into civil war.
But Benotman did not rule out Gaddafi's departure.
"This move may seem to run against the grain of his current military gains, but Gaddafi is a pragmatist who understands the power of the international community to isolate governments," said Bentoman, recalling Libya's isolation in the 1980s and 1990s over Gaddafi's support of armed groups.
(Additional reporting by Tom Pfeiffer in Benghazi, Mariam Karoumy in Ras Jdir, Mo Abbaas in Ras Lanuf, Piotr Pilat in Benghazi, Alexander Dziadosz in Ajdabiya, Hamid Ould Ahmed in Algiers and Stefano Ambrogi and William Maclean in London; writing by Myra MacDonald and Philippa Fletcher; editing by Angus MacSwan)