By Maria Golovnina and Michael Georgy
TRIPOLI (Reuters) - Libyan forces loyal to Muammar Gaddafi closed in on rebels in the western city of Zawiyah on Wednesday, surrounding them with tanks and snipers in the main square, a resident and a rebel fighter said.
"We can see the tanks. The tanks are everywhere," a rebel fighter told Reuters by phone from inside Zawiyah, the closest rebel city to the capital Tripoli.
"They have surrounded the square with snipers and tanks. The situation is not so good. It's very scary. There are a lot of snipers," said a Zawiyah resident.
With the international community still hesitant about how to respond to the crisis in Libya, a counter-offensive by Gaddafi has halted a rebel advance in the east and left others stranded in the western cities of Zawiyah and Misrata.
U.S. Secretary of State Hillary Clinton made it clear that Washington believes that imposing a no-fly zone is a matter for the United Nations and should not be a U.S.-led initiative.
Gaddafi has said he would die in Libya rather than surrender. But that has failed to stem speculation on his plans.
A Libyan-born analyst said Gaddafi's inner circle had reached out to 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 rebel fighter in Zawiyah, named Ibrahim, said Gaddafi loyalists were in control of the main road and the suburbs, while rebel forces held the square. Army snipers on top of most buildings were shooting anyone who dared leave their homes.
"There are many dead people and they can't even bury them. Zawiyah is deserted. There's nobody on the streets. No animals, not even birds in the sky," he said.
A government spokesman said troops were mostly in control of Zawiyah, but there was still a small group of fighters. "Maybe 30-40 people, hiding in the streets and in the cemetery. They are desperate," he said in Tripoli.
Foreign reporters are prevented from entering Zawiyah, 50 km (30 miles) west of Tripoli without an official escort.
Rising casualties and threats of hunger and a refugee crisis have increased pressure on foreign governments to act, but many were fearful of moving from sanctions alone to military action. President Barack Obama has faced criticism for being cautious.
"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 President Barack Obama, in a telephone call, "agreed to press forward with planning, including at NATO, on the full spectrum of possible responses, including surveillance, humanitarian assistance, enforcement of the arms embargo, and a no-fly zone."
Britain and France are seeking a U.N. resolution to authorize such a zone to ground Gaddafi's aircraft and prevent him moving troops by air. Russia and China, which have veto power in the U.N. Security Council, are cool toward the idea, which could require bombing Libyan air defenses.
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. Rebels constantly fire off machine guns at attacking warplanes.
"They had a no-fly zone in Iraq. Why is Gaddafi their darling and Saddam Hussein was not?" volunteer Naji Saleh told Reuters near the oil port of Ras Lanuf, referring to the air exclusion zone imposed on Iraq for more than a decade.
"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."
Rebels captured Ras Lanuf last week and began pushing down the strategic coastal road toward Sirte, Gaddafi's home town.
But they were beaten back and are now stuck behind a stretch of no man's land desert between Ras Lanuf and Bin Jawad, 550 km (340 miles) east of Tripoli.
REBELS TRY TO GET ORGANISED
Pro-Gaddafi troops who had besieged the rebel-held city of Misrata left on Tuesday, driving east toward Sirte with other forces coming from Tripoli, a resident said. There had already been reports Sirte had been reinforced from the south.
Asked if more pro-Gaddafi forces would push east if they secured Zawiyah, Iman Bugaigis, a media officer with the rebel coalition, said, "We know that."
Rebel forces in the Ras Lanuf area were however also trying to organize themselves. When they heard a plane overhead, someone began shouting instructions through a megaphone, telling people to "spread out, don't concentrate in one place."
At one checkpoint, someone checked traffic and numbers and types of weapons going forward. Another coordinator was giving instructions to those with heat-seeking Sam 7 missiles.
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.
Representatives of the Libyan opposition met EU foreign policy chief Catherine Ashton in Strasbourg and planned to speak at the European Parliament on Wednesday.
Mahmoud Jebril, head of the crisis committee of the National Libyan Council, said the EU should recognize the council as the sole legitimate representative of the Libyan people.
EU states agreed to add the $70 billion Libyan Investment Authority to a sanctions list on Tuesday. The embargo already covers 26 Libyans including Gaddafi and his family.
(Additional reporting by Tom Pfeiffer in Benghazi, Mariam Karoumy in Ras Jdir, Mo Abbaas in Ras Lanuf, Alexander Dziadosz in Ajdabiya, Hamid Ould Ahmed in Algiers and Stefano Ambrogi and William Maclean in London; Writing by Myra MacDonald; Editing by Giles Elgood)