The fighting underscored the dilemma facing the US and its allies in Libya: rebels may be unable to oust Gaddafi militarily unless already contentious international airstrikes go even further in taking out his forces.
Opposition fighters pleaded for strikes as they fled the hamlet of Bin Jawwad, where artillery shells crashed thunderously, raising plumes of smoke. No such strikes were launched during the fighting, and some rebels shouted, "Sarkozy, where are you?" - a reference to French President Nicolas Sarkozy, one of the strongest supporters of using air power against Gaddafi.
World leaders meeting in London agreed that Gaddafi should step down but have yet to decide what additional pressure to put on him.
"Gaddafi has lost the legitimacy to lead, so we believe he must go. We're working with the international community to try to achieve that outcome," US Secretary of State Hillary Rodham Clinton told reporters after the talks concluded.
German Foreign Minister Guido Westerwelle said it "has to be made very clear to Gaddafi: his time is over." But Germany and other countries have expressed reservations about the current military intervention in Libya, let alone expanding it.
France has struck a more forceful tone. Defence Minister Gerard Longuet told France-Inter radio that Paris and London believe that the campaign "must obtain more" than the end of shooting at civilians.
The rout of the rebels on Tuesday illustrated how much they rely on international air power. Only a day earlier, they had been storming westward in hopes of taking Sirte, Gaddafi's hometown and a bastion of his support in central Libya. They reached within 100km of the city before they were hit by the onslaught from Gaddafi's forces, driving them back east to Bin Jawwad under barrages of rocket and tank fire.
Many of the ragtag, untrained volunteers who make up the bulk of the rebel forces fled in a panicked scramble. However, some of them backed by special forces soldiers from military units that joined the rebellion took a stand in Bin Jawwad, bringing up truck-mounted rocket launchers of their own and returning fire.
The two sides traded salvos for hours, drilling Bin Jawwad's buildings with shrapnel and bullet holes. The steady drum of heavy machine gun fire and the pop of small arms could be heard above the din as people less than a mile outside the village scaled mounds of dirt to watch the fighting.
But by the afternoon, rebels fled further east, their cars and trucks filling both lanes of the desert highway as they retreated to and even beyond the oil port of Ras Lanouf, roughly 40km away. Some loyalist forces had reached the outskirts of Ras Lanouf, where the thud of heavy weapons was heard and black smoke rose from buildings.
"If they keep shelling like this, we'll need airstrikes," said Mohammed Bujildein, a 27-year-old rebel fighter. He was gnawing on a loaf of bread in a pickup truck with a mounted anti-aircraft gun, waiting to fill up from an abandoned gas tanker truck on the eastern side of Ras Lanouf.
With international strikes, he boasted, "we'll be in Sirte tomorrow evening."
"This today is a loss, but hopefully we'll get it back," he said.
It was the second time in weeks that rebel forces have been driven back from an attempted assault on Sirte. The last time, early in the month, it nearly meant the end of their movement: they retreated hundreds of miles (kilometers) west and Gaddafi forces nearly stormed their capital, Benghazi, until the US and European strikes began 10 days ago, driving Gaddafi's forces back from bloody sieges.
Even proponents of the international campaign have been wary of going further by effectively providing air cover for rebels who are now trying to go on the offensive and march through Gaddafi-controlled territory to the Libyan capital, Tripoli, to end his more than 41 years in power.
With the possibility of a prolonged military deadlock looming, 40 foreign ministers, Clinton, the heads of NATO and the UN and representatives from the Arab League met in London to decide how to help Libya into a post-Gaddafi future.
British Prime Minister David Cameron acknowledged that "the Libyan people cannot reach that future on their own. We are all here in one united purpose, that is to help the Libyan people in their hour of need."
Clinton said the international community must support calls for democracy sweeping Libya and its neighbours, but warned that "these goals are not easily achieved." US Ambassador to the United Nations Susan Rice said there are plenty of "non-military means at our disposal" to oust the Libyan leader.
Italian Foreign Minister Franco Frattini pushed a plan for a cease-fire, exile for Gaddafi and a framework for talks on Libya's future between tribal leaders and opposition figures. He said negotiations on securing his exit were being conducted with "absolute discretion," though he said there could be no promise of immunity for Gaddafi from international prosecution. So far, Gaddafi has shown little sign he might choose exile, vowing to fight to the end.
Cameron and Sarkozy urged Gaddafi loyalists to seize a final chance to abandon him and side with those seeking political reform - effectively pinning hopes on a palace coup.
Representatives of the opposition's political leadership, the Interim National Council, on Tuesday met Clinton and British Foreign Secretary William Hague, but did not attend the main conference.
Mahmoud Shammam, a council spokesman, suggested Libyans were prepared to fight their own battle. Though the international community had a responsibility to prevent "mass genocide," he told reporters, "We are not asking for any non-Libyan to come and change the regime."
"The aspirations of the Libyan people are to be free, to live under a constitutional democratic system," Shammam said. "(We have) had enough of tyranny."
A senior Obama administration official said the US would soon send an envoy to Libya to meet rebel leaders.
Chris Stevens, former US envoy to Tripoli, will travel to the rebel stronghold of Benghazi in the coming days to establish better ties with groups seeking to oust the longtime Libyan leader. The official, who spoke on condition of anonymity to discuss internal planning, stressed that the move doesn't constitute formal recognition of the opposition.
The international operation has decimated loyalist forces, which would risk more airstrikes if they attempted the kind of powerful counterattack they launched last month. The rebel forces, meanwhile, showed signs of being more organised despite Tuesday's losses, more effectively deploying their heavy weapons at the front.
In the more densely inhabited western half of the country, Gaddafi has largely crushed the rebellion in Tripoli and in several towns that rose up against his rule since the turmoil began on February 15. Other towns and cities in the west never saw an effective anti-Gaddafi uprising, suggesting his popular support there is stronger, or that tribes in those areas chose to stay neutral to see who wins the conflict.
Regime forces continued to besiege the last significant rebel holdout in the west, Libya's third-largest city, Misrata. From Misrata's outskirts, the troops pounded streets and the city's port, residents said. At least three people were killed in shelling on Monday, a doctor in the city said.
The US Navy reported that two of its aircraft and a guided missile destroyer attacked a number of Libyan coast guard vessels, rendering them inoperable, in the port of Misrata. It said the Libyan vessels had been "firing indiscriminately" at merchant ships. US ships and submarines also unleashed 22 cruise missiles late on Monday and early on Tuesday at Libyan missile storage facilities in the Tripoli area. New explosions were heard in Tripoli on Tuesday night in a sign of a new barrage.
Libyan state TV reported strikes in Tripoli by "the Crusader colonial aggression" and said that "the cost of each rocket and bomb is paid for by Qatar and the Emirates" - a dig at the two Arab nations that have joined the international campaign.
In Benghazi, opposition spokeswoman Iman Bughaigis contended that the international bombardment had left Gaddafi's troops "in very bad morale and many of his defectors are leaving him."
"We understand that it is our fight," she said. The international campaign provides "a safe haven ... but to liberate our country, this is our duty and we hope to do that."
In an open letter to the international community, meanwhile, Gaddafi called for a halt to the "monstrous assault" on Libya and maintained that that the rebels were supported by the al-Qaida terrorist network, a claim the opposition denies.
"What is happening now is providing a cover for al-Qaeda through airstrikes and missiles to enable al-Qaeda to control North Africa and turn it into a new Afghanistan," he said.
