Libyan rebels announced a move to govern the country from Tripoli as they battled pockets of loyalists in their hunt for fugitive strongman Muammar Gaddafi, who taunted them from his hiding place.
Rumours of Gaddafi or his sons being cornered or sighted, swirled among excitable rebel fighters engaged in heavy machinegun and rocket exchanges. But even after his compound was overrun on Tuesday, hopes of a swift end to six months of war were still being frustrated by fierce rearguard actions.
Western powers have demanded Gaddafi's surrender and worked to help the opposition start developing the trappings of government and bureaucracy lacking in the oil-rich state after 42 years of an eccentric personality cult.
The United States and South Africa struck a deal to allow the release of $1.5 bln in frozen funds for humanitarian aid and other civilian needs, U.N. diplomats said.
But with loyalists holding out in the capital, in Gaddafi's coastal home city and deep in the inland desert, violence could go on for some time, testing the rebel government's ability to keep order when it moves from its eastern stronghold Benghazi.
"I proclaim the beginning of the resumption of the work of the executive office in Tripoli," Ali Tarhouni, in charge of oil and financial matters for the rebel council, said in Tripoli.
The shift is seen as a crucial step to smoothing over rifts in the country, fragmented by regional and tribal divisions, particularly between east and west.
Gaddafi taunted his enemies and their Western backers, calling on his supporters to fight back in the city in his latest broadcast rallying cry.
"The enemy is delusional, NATO is retreating," he shouted, sounding firmer and clearer than in a similar speech released on Wednesday. Though his enemies believe Gaddafi, 69, is still in the capital, they fear he could flee by long-prepared escape routes, using tunnels and bunkers, to rally an insurgency.
AIR STRIKES
The rebels' Colonel Hisham Buhagiar said they were targeting several areas to find Gaddafi: "We have one unit that does intelligence and other units that hunt him down."
A pro-Gaddafi station said NATO warplanes had bombed his hometown of Sirte, one of his last strongholds.
Rebel leaders, offering a million-dollar reward, say the war will be over only when Gaddafi is found, "dead or alive".
In a southern district of Tripoli, close to the notorious prison of Abu Salim, rebel forces launched a concerted assault, sweeping from house to house and taking prisoners. Elsewhere, pro-Gaddafi forces shelled rebel positions at Tripoli's airport.
Diehards numbering perhaps in the hundreds were keeping at bay squads of irregular, anti-Gaddafi fighters who had swept into Tripoli on Sunday and who were now rushing from one site to another, firing assault rifles, machineguns and anti-aircraft cannon bolted to the backs of pick-up trucks.
Speaking in Italy, the head of the rebel government, Mahmoud Jibril said the uprising, the bloodiest so far of the Arab Spring, could fall apart if funds were not forthcoming quickly: In an interview with Reuters, Tarhouni said the rebel government hopes to restart oil exports within two to three months and reach full volumes in about a year.
REVENGE
After a meeting of officials in Istanbul, the Contact Group of allies against Gaddafi called on Libyans to avoid revenge.
"The participants attached utmost importance to the realisation of national reconciliation in Libya," it said. "They agreed that such a process should be based on principles of inclusiveness, avoidance of retribution and vengeance."
Gaddafi's opponents fear that he may rally an insurgency, as did Saddam Hussein in Iraq, should he remain at large and, perhaps, in control of funds salted away for such a purpose.
The United States and NATO are also deeply concerned about possible looting and resale of weapons from Libyan arsenals as Gaddafi's rule crumbles, though the U.S. State Department said it believed Libya's stocks of concentrated uranium and mustard agent were secure.
However, with fighting raging, there was already evidence of the kind of bitter bloodletting in recent days that the rebel leaders are anxious to stop in the interests of uniting Libyans, including former Gaddafi supporters, in a democracy.
A Reuters correspondent counted 30 bodies, apparently of troops and gunmen who had fought for Gaddafi, at a site in central Tripoli. At least two had their hands bound. One was strapped to a hospital trolley with a drip still in his arm.
All the bodies had been riddled with bullets.
Elsewhere, a British medical worker said she had counted 17 bodies who she believed were of prisoners executed by Gaddafi's forces. One wounded man said he had survived the incident, when, he said, prison guards had sprayed inmates with gunfire on Tuesday as the rebel forces entered Gaddafi's compound.
