A fighter in Zawiyah said rebels had retaken the main square of the western city on Wednesday after pro-Gadhafi forces took control of it earlier in the day but later pulled back following a rebel counter-attack.
The fighter named Ibrahim told Reuters the government had brought in supporters of Libyan leader Moammar Gadhafi for a rally there and they were now on the main road.
"We have pushed (pro-Gadhafi forces) out and we are back in the square now," Ibrahim said by telephone. "They are one km away now. Thanks to Allah we are sitting in the square now."
The civilians, who were not from Zawiyah, had chanted pro-Gadhafi slogans, he said. Libyan television had earlier shown a loyalist crowd in the city.
"There is no fighting at the moment, but if the fighting begins, those civilians will be caught between the fire," he said, adding that the Gadhafi forces had left a trail of destruction on their way into Zawiyah.
Both Gadhafi forces and rebel fighters have claimed to be in control of Zawiyah, Al Jazeera satellite channel reported. Several of Gadhafi's senior troops, including a general and a colonel, were killed in the fighting there, the TV station said.
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A local doctor said the death toll in the day's battles was at least 40. The doctor said there were many dead in the streets, including old people, women and children.
Ahmed Shebani, a 41-year-old Libyan-Canadian businessman who was evacuated from Tripoli in late February, said he could not reach his family in Zawiyah. They last spoke two days ago.
"We need this no-fly zone to go into effect now, not tomorrow, not after tomorrow … When is the international community going to have a heart and take a stand?" he said in a telephone interview with msnbc.com. "We’re past the 11th hour for Zawiyah to even be a city. … we are just distraught over this continuance of this massacre that’s going on."
"(Zawiyah) is a very strategic location," said Khaeri Aboushagor, spokesman for the London-based opposition group the Libyan League for Human Rights.
"He wants it for the refinery ... but more importantly he needs to take Zawiyah to move forces up. Only then can he hope to make a move on Benghazi."
The counter-offensive by Gadhafi, almost three weeks after an uprising began against him in eastern Libya, has halted the rebels' advance in the east and left others stranded in Zawiyah and another western city, Misrata.
At the same time, the Libyan government appeared to be putting out feelers toward western governments who have tried to isolate Gadhafi with financial sanctions and are discussing further measures to try to stop the violence.
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's Foreign Minister was expected to meet another government official from Tripoli, the Lusa news agency said. There were no details of the kind of message they were bringing.
Also Wednesday, a high-ranking member of the Libyan military flew to Cairo with a message for Egyptian army officials from Gadhafi, but no further details were known.
While the eastern front around the key oil export hubs of Bregha, Ras Lanuf and Bin Jawad has been heavily covered by foreign journalists entering rebel territory from Egypt, the Western battle is taking place largely out of sight, with information very difficult to obtain.
To the east, Gadhafi loyalists reportedly struck an oil pipeline and oil storage facility.
An Associated Press reporter near the eastern front saw an explosion with a giant yellow fireball from the area of the Sidr oil facility, east of Tripoli. Three columns of thick smoke rose from the area, apparently from burning oil.
Mustafa Gheriani, an opposition spokesman, says government artillery hit a pipeline supplying Sidr from oil fields in the desert. He said an oil storage depot was also hit, apparently by an airstrike.
Gadhafi's successes have left Western powers struggling to come up with a plan to support the rebels without becoming ensnared in the complex and fast-moving conflict.
President Barack Obama's most senior advisers were meeting Wednesday to outline what steps are realistic and possible to pressure Gadhafi to halt the violence and give up power.
They planned to examine the ramifications of a no-fly zone over Libya and other potential military options, U.S. officials said, speaking on condition of anonymity to discuss internal administration deliberations.
The White House said on Wednesday the U.N. arms embargo on Libya contains enough flexibility to allow the arming of Libyan rebels if such a decision were made.
Britain and France are pushing for the U.N. to create a no-fly zone over the country, and while the U.S. may be persuaded to sign on, such a move is unlikely to win the backing of veto-wielding Security Council members Russia and China, which traditionally object to such steps as infringements on national sovereignty.
The Libyan people will take up arms against Western powers if they seek to enforce a no-fly, Gadhafi said in an interview broadcast Wednesday.
"If they take such a decision it will be useful for Libya, because the Libyan people will see the truth, that what they want is to take control of Libya and to steal their oil," Gadhafi told Turkey's state-run TRT news channel.
"Then the Libyan people will take up arms against them," Gadhafi said. The interview was conducted in Arabic and aired with Turkish subtitles.Video: Rebels under siege plead for no-fly zone
Exiled Libyan crown prince Mohammed El Senussi asked foreign powers to impose a no-fly zone and strike Gadhafi's air defenses. He added that the Libyan people would not want international forces on the ground.
"We need less talk and more action. This is not a crisis to be discussed in committees while men, women and children are being slaughtered indiscriminately, and action is needed as soon as possible," he said from his exile in London.
The Associated Press and Reuters contributed to this report.