The rebels advanced five days ago to the outskirts of the small town of Bir al-Ghanam, raising the possibility of a breakthrough in a four-month old conflict that has become the bloodiest of the "Arab Spring" uprisings.

Rebel fighters who had been massing on a ridge near Bir al-Ghanam and preparing for an attack were pulled back under fire from Russian-made Grad rockets.

The rebels returned to the same positions on the edges of Bir al-Ghanam on July 1 afternoon.

In an address carried by Libyan television and broadcast to some 100,000 supporters who gathered on July 1 in Tripoli's Green Square, Gaddafi vowed to stay on and warned NATO to stop its air war or face defeat.

Two hours after the speech, three explosions were heard and columns of black smoke were seen rising from the direction of Gaddafi's central Bab Al Aziziya compound in what appeared to be NATO air strikes.

African Union leaders offered on June 30 to host talks on a ceasefire and transition to democratic government, but left open whether there was any future role for Gaddafi. There was no immediate reaction from either side to the offer.

The Libyan conflict has sent ripples far beyond the North African country of six million people.

The fighting has halted Libyan oil exports, helping push up world crude prices to about US$111 a barrel.