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.

No-fly zone

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 authorise 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 towards the idea, which could require bombing Libyan air defences.

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 towards 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.