By Maria Golovnina and Michael Georgy
TRIPOLI (Reuters) - NATO and the European Union begin two days of talks on Libya Thursday focusing on a possible "no-fly" zone after some of the fiercest fighting on the ground in almost three weeks of clashes.
A Libyan insurgent said rebels had retaken the heart of Zawiyah, the closest city to the capital Tripoli, from forces loyal to Muammar Gaddafi Wednesday, after it appeared to change hands twice during the day.
The Pentagon said it was preparing a "full range" of military options for Libya, including a no-fly zone, with the plans to be discussed by NATO defense ministers at a meeting in Brussels.
"NATO is not looking to intervene in Libya, but we have asked our military to conduct prudent planning for all eventualities," NATO Secretary-General Anders Fogh Rasmussen told Britain's Sky News.
Italy, whose bases could play a critical role in any military action, has said it will back any decisions taken by NATO, the EU or the United Nations, clearing the way for U.S. naval forces based in Naples to be deployed if needed.
U.S. Secretary of State Hillary Clinton has made it clear imposing a no-fly zone is a matter for the United Nations and should not be a U.S.-led initiative.
However, Russia and China, permanent members of the U.N. Security Council, are cool to the idea, which could entail bombing Libyan air defenses as a first step.
EU foreign ministers also meet to discuss North Africa in Brussels Thursday, with the focus on how the 27-country bloc can support the process of political transition in Egypt and Tunisia, while using sanctions and any other political means to apply pressure on Gaddafi to move aside.
The White House Wednesday defended its response to the turmoil in Libya, insisting it had taken dramatic action and rejecting criticism that its consensus-based approach was too cautious.
"There has never been a situation where the international community, with leadership by the United States, has acted as quickly as it has to respond to this kind of situation," spokesman Jay Carney said.
Gaddafi tried to crush the uprising against him by bombarding Zawiyah and the front lines of the rebel-held east of the country.
The Zawiyah rebel fighter, who gave his name as Ibrahim, told Reuters by telephone: "Thanks to Allah we are sitting in the square now." He earlier reported 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 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 government stuck with its earlier report that its forces had driven rebels from the center and state television said people there were celebrating victory over "terrorist gangs."
A three-member BBC news team trying to reach Zawiyah was detained by Libyan security forces, beaten and subjected to mock execution, the British broadcaster said. They were released after 21 hours and flew out of Libya.
The counter-offensive by Gaddafi has halted the rebels' advance in the east, where they were forced to withdraw from the front-line 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 which have tried to isolate Gaddafi with financial sanctions and were 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 EU and NATO officials meeting Thursday and Friday, Italian Foreign Minister Franco Frattini said, suggesting the situation was fluid.
Portugal said a Gaddafi envoy met its foreign minister on Wednesday to explain Tripoli's view of the conflict and Greece said another would meet Greek Deputy Foreign Minister Dimitris Dollis Thursday. There were no details of the messages the emissaries were bringing.
Rebels in the east faced a new barrage of artillery fire on their desert front line outside the oil port of Ras Lanuf and said government forces had hit an oil pipeline leading to Sidrah, about 550 km (340 miles) east of Tripoli. State television blamed "al Qaeda-backed" armed elements.
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.
Brent crude oil rebounded toward $116 a barrel, renewing fears global economic recovery could be hit.
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 giving him refuge.
"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."
(Additional reporting by Tom Pfeiffer in Benghazi, Mariam Karoumy in Ras Jdir, Mohammed Abbas in Ras Lanuf, Piotr Pilat in Benghazi, Alexander Dziadosz in Ajdabiya, Hamid Ould Ahmed in Algiers, Luke Baker in Brussels, Ross Colvin and Andrew Quinn in Washington and Stefano Ambrogi and William Maclean in London; Writing by Myra MacDonald and Philippa Fletcher; Editing by Andrew Dobbie and Nick Macfie)