By Maria Golovnina and Michael Georgy
TRIPOLI (Reuters) - A Libyan insurgent 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 the frontlines of the rebel-held east of the country.
"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 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."
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.
Portugal said a Gaddafi envoy met its foreign minister on Wednesday to explain Tripoli's view of the conflict and Greece said another will meet Greek Deputy Foreign Minister Dimitris Dollis, in Cairo on Thursday morning. 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 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.
The eastern rebels reiterated an appeal for outside powers to impose a no-fly zone to shield them from air attacks.
But 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 is wary of plunging into another war.
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."
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."
The Pentagon said a "full range" of military options for Libya, including a no-fly zone, would be discussed by NATO defense ministers in Brussels on Thursday.
But U.N. Security Council permanent members Russia and China are cool to the idea of a no-fly zone, 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 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."
(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)