By Maria Golovnina and Michael Georgy
TRIPOLI (Reuters) - Forces loyal to Muammar Gaddafi regained control of the center of Zawiyah on Wednesday, after using tanks and snipers to drive rebels out of their stronghold in the western city's main square, residents said.
Libyan state television also showed footage of Gaddafi supporters waving flags who it said were moving toward the center of Zawiyah, which had been the closest rebel-held city to the capital Tripoli.
A fighter told Reuters pro-Gaddafi forces had entered the main square as rebels pulled back. A local doctor confirmed the report and said the death toll in the day's fighting was at least 40 and probably many more.
"We have pulled back and they are inside the square but we will attack them again and have it back," the fighter said by telephone. "We will do that tonight. This is not the end."
The doctor said there were many dead in the streets, including old people, women and children.
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 Zawiyah and another western city, Misrata.
Rebels in the east, facing a fresh barrage of artillery fire on their desert frontline outside the oil port of Ras Lanuf, 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, however, 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 flee. 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."
A rebel fighter and a resident had said earlier the rebel forces were surrounded in Zawiyah's main square.
"We can see the tanks. The tanks are everywhere," the rebel fighter told Reuters by phone from inside Zawiyah.
"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.
Foreign reporters are prevented from entering Zawiyah, 50 km (30 miles) west of Tripoli without an official escort.
CITY SEALED OFF
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.
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 President Barack Obama agreed in a telephone call to plan "the full spectrum of possible responses, 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. U.N. Security Council permanent members Russia and China are cool to the idea, which could mean 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.
"They had a no-fly zone in Iraq. Why is Gaddafi their darling and Saddam Hussein was not?" volunteer Naji Saleh told Reuters near 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 on 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 ORGANIZED
Gaddafi loyalists launched a bombardment near rebel positions around the oil terminal of Sidra near Ras Lanuf, on Wednesday, blowing up storage tanks at the facility.
Rebels retaliated by firing back with rockets as a fireball exploded from one of the oil tanks and the sky above the terminal filled with black smoke.
It was not clear if an air strike, rockets or artillery had caused the explosions at Sidra. Rebels blamed Gaddafi forces.
An air strike was reported on Ras Lanuf, which has sustained several attacks in the past days.
Rebel forces in the area were trying to organize themselves to resist Gaddafi's forces. 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.
(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)