US and European leaders weighed the use of NATO air power to impose a no-fly zone, with the aim of stopping Kadhafi using air power against his own people to crush the insurrection against his four decades of iron rule.

Meanwhile, Kadhafi loyalists, who have lost control of much of the country to the rebellion that started on February 15, tried to retake the key western city of Zawiyah but were repulsed.

Kadhafi's army also moved to re-establish its authority at a border post with Tunisia, to the west, days after leaving the area, witnesses said.

US Secretary of State Hillary Clinton said Libya was at a crossroads in its history and "the stakes are high."

"In the years ahead, Libya could become a peaceful democracy, or it could face protracted civil war" and descend into chaos, she told the House Foreign Affairs Committee.

The UN refugee agency said the situation on the Libya-Tunisia border was reaching crisis point as desperate expatriate workers poured across, fearful of a bloody rearguard action by diehard regime elements.

More than 100,000 have already left Libya to escape a vicious crackdown by Kadhafi loyalists which has left at least 1,000 dead, according to conservative UN estimates.

"It is not acceptable to have a situation where Colonel Kadhafi can be murdering his own people, using aeroplanes and helicopter gunships and the like," said British Prime Minister David Cameron, a leading advocate of the no-fly option.

"It's right for us to plan and look at plans for a no-fly zone."

Senior US commander General James Mattis told a Senate hearing that any no-fly zone would first require bombing the oil-rich north African nation's air defense systems.

"It would be a military operation," said the head of Central Command.

His comments came as the US military moved naval and air forces nearer Libya for possible joint NATO military action.

The USS Kearsarge, an amphibious assault ship accompanied by two other vessels, was expected to pass through the Suez Canal soon from the Red Sea, said two defence officials, speaking on condition of anonymity.

US military leaders are preparing a range of options for President Barack Obama and holding discussions with their European counterparts, but the likelihood of military intervention remained unclear, one official told AFP.

"I think it (the advice) goes from everything from a show of force to something more involved," the official said, adding: "The president has made no decisions about the use of the military."

But France's new Foreign Minister Alain Juppe ruled out military action without a clear UN mandate and also said NATO intervention in Libya might be "extremely counter-productive" in the eyes of Arab public opinion.

Although Kadhafi's military is badly outgunned by US and NATO aircraft, the regime has dozens of surface-to-air missiles that could shoot down invading warplanes.

The no-fly option received backing from the exiled crown prince of Libya, Mohammed El-Senussi, who said military action should go no further than that.

"Let me be clear. There is a difference between a no-fly zone and military intervention and the Libyan people do not seek external military involvement on the ground. That will not bring about the peace and freedom that we crave," he said in London, where he has lived since 1988.

Overnight, pro-Kadhafi militiamen attempted to retake Zawiyah, a middle-class dormitory town just 60 kilometres (40 miles) west of Tripoli where several of the veteran leader's lieutenants have homes, residents told AFP by telephone.

But they fell back when they met resistance from armed opposition supporters controlling the city centre.

"The militiamen did not enter the city centre. They are still on the outskirts. They are heavily armed and have tanks with them."

The cities of Misrata east of the capital and Gherian to its south also appeared to remain in opposition hands, as was virtually all of the east of the country, including several key oilfields.

Forces at the Wazin border post near Tunisia, which had been deserted by the police and military since Sunday, were reinforced, three witnesses said after returning from the border.

"I saw about 20 troops at Wazin where there were none yesterday," said one, asking not to be named.

"They were regular army soldiers, some of them wearing a green scarf around the neck. They were armed with automatic Kalashnikov rifles. There were no tanks."

European Union leaders will gather in Brussels on March 11 for a special summit aiming to deliver a response to the Libya crisis and turmoil in the Arab world, an EU diplomat said on Tuesday.

"What is going on -- the massive violence against peaceful demonstrators -- shocks our conscience," said EU foreign policy chief Catherine Ashton.

"It should spring us into action."

Diplomats told AFP the bloc was also eyeing an asset freeze on Libyan firms linked to Kadhafi's regime.

Anti-regime leaders in Benghazi said on Tuesday they have formed a military council in the eastern Libyan city, which has become the hub of efforts to topple Kadhafi.

The council, comprising officers who joined protesters against Kadhafi's rule, will liaise with similar groups in other freed cities in the east but it was not immediately clear if there were plans for a regional command.

Salwa Bughaighi, a member of the coalition of lawyers and activists trying to run Benghazi, said her coalition would demand a no-fly zone to prevent Kadhafi from reinforcing his strongholds in Tripoli and Sirte.

Oil prices rose as Libya's violence sparked global supply jitters, with Brent North Sea crude for delivery in April up $1.75 at $113.55 a barrel.

New York's light sweet crude for April, known as West Texas Intermediate (WTI), gained $1.34 cents to $98.31 a barrel.

And Fitch Ratings said it had cut Libya's credit ratings three notches to a below investment grade rating of BB, due to the turmoil there.

Anger at authoritarian Arab regimes in the Middle East and North Africa raged from Algeria to Yemen and has spread to the previously unaffected Gulf states of Kuwait and Oman.

Huge crowds poured into the centre of Yemen's capital Sanaa on Tuesday after an opposition call for a mass rally against President Ali Abdullah, in power since 1978. That drew angry accusations from him that it was all the work of Israel and the United States.

Saleh dismissed the protests across the Middle East as "a storm orchestrated from Tel Aviv and under Washington's supervision."

In Oman, armoured cars moved in to disperse protesters who have been demonstrating since Saturday in the key industrial area of Sohar, northwest of the capital Muscat, for jobs and reform in the normally placid Gulf sultanate.

Thousands of Bahrainis again protested in Manama's Pearl Square, the focal point for anti-regime demonstrations over the past fortnight.

burs/srm

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