Muammar Gaddafi struck at rebel control of a key Libyan coastal road for a second day on Thursday but received a warning he would be held to account at The Hague for suspected crimes by his security forces.
Venezuela said Gaddafi had agreed to its proposal for an international commission to negotiate an end to the turmoil in the world's 12th largest oil exporting nation.
But a leader of the uprising against Gaddafi's 41-year-old rule rejected any proposal for talks with the veteran leader.
In Paris, French Foreign Minister Alain Juppe said France and Britain would support the idea of setting up a no-fly zone over Libya if Gaddafi's forces continued to attack civilians.
The uprising, the bloodiest yet against long-serving rulers in the Middle East and North Africa, has torn through the OPEC-member country and knocked out nearly 50 percent of its 1.6 million barrels per day output, the bedrock of Libya's economy.
In Libya's east, the site of a struggle for control of a strategically vital Mediterranean coastal road and oil industry facilities, witnesses said a warplane for a second day bombed the oil terminal town Brega, 800 km (500 miles) east of Tripoli.
Warplanes also launched two raids against the nearby rebel-held town of Ajbadiya, witnesses said.
Gaddafi's son, Saif al-Islam, said the bombing of Brega was intended to scare off militia fighters and gain control of oil installations.
First of all the bombs (were) just to frighten them to go away, he told Britain's Sky News. Not to frighten them.
But on the ground, events appeared to turn against Gaddafi, as rebels spearheading the unprecedented popular revolt pushed their frontline against government loyalists west of Brega, where they had repulsed an attack a day earlier.
The opposition fighters said troops loyal to Gaddafi had been driven back to Ras Lanuf, home to another major oil terminal and 600 km (375 miles) east of Tripoli.
They also said they had captured a group of mercenaries.
In an angry scene at al-Uqayla, east of Ras Lanuf, a rebel shouted inches from the face of a captured young African and alleged mercenary: You were carrying guns, yes or no? You were with Gaddafi's brigades yes or no?
The silent youth was shoved onto his knees into the dirt. A man held a pistol close to the boy's face before a reporter protested and told the man that the rebels were not judges.
In The Hague, International Criminal Court prosecutor Luis Moreno-Ocampo said Gaddafi and members of his inner circle, including some of his sons, could be investigated for alleged crimes committed since the uprising broke out in mid-February.
He said a request for arrest warrants over Libya could be made in a few months time.
We have identified some individuals in the de facto or former authority who have authority over the security forces who allegedly committed the crimes, Moreno-Ocampo said.
They are Muammar Gaddafi, his inner circle including some of his sons, who had this de facto authority. There are also some people with formal authority who should pay attention to crimes committed by their people.
Libyan government spokesman Musa Ibrahim told BBC Radio the news from The Hague was close to a joke.
No fact-finding mission has been sent to Libya. No diplomats, no ministers, no NGOs or organisations of any type were sent to Libya to check the facts ... No one can be sent to prison based on media reports, he said.
As the struggle on the ground intensified, a spokesman for Venezuelan President Hugo Chavez, a Gaddafi ally, said the Libyan government had accepted a plan by Venezuela to seek a negotiated solution to the conflict in the North African country,
Information Minister Andres Izarra also confirmed the Arab League had shown interest in the Chavez plan to send an international commission to talk with both sides in Libya
Arab League Secretary-General Amr Moussa said earlier that the plan was under consideration. Moussa said he himself had not agreed to it and did not know whether Gaddafi had done so.
Oil fell on news of the plan. Brent crude fell more than $3 to $113.09 per barrel as investors eyed a possible deal brokered by Chavez. It later edged up to $114.78.
Chavez's plan would involve a commission from Latin America, Europe and the Middle East trying to reach a negotiated outcome between the Libyan leader and rebel forces.
Al Jazeera said the chairman of the rebels' National Libyan Council, Mustafa Abdel Jalil, rejected any talks with Gaddafi.
The rebels, armed with rocket launchers, anti-aircraft guns and tanks, called on Wednesday for U.N.-backed air strikes on foreign mercenaries it said were fighting for Gaddafi.
Opposition activists called for a no-fly zone, echoing a demand by Libya's deputy U.N. envoy, who now opposes Gaddafi.
Bring Bush! Make a no fly zone, bomb the planes, shouted soldier-turned-rebel Nasr Ali, referring to a no-fly zone imposed on Iraq in 1991 by then U.S. President George Bush.
Italy said it was preparing for a potential mass exodus of migrants escaping turmoil in North Africa after a rise in flows of illegal immigrants from Tunisia, the initial destination for tens of thousands who have fled violence in Libya.
Save The Children and Medecins Sans Frontieres said they were struggling to get medicines and care to Libya's needy, with gunmen blocking roads and civilians too scared to seek help.
At a meeting with adoring loyalists in Tripoli on Wednesday, Gaddafi slammed armed gangsters he said were behind the unrest as part of a plot to colonise Libya and grab its oil, and said if foreigners intervened another Vietnam will begin.
The Libyan government has tried to persuade people in Tripoli that life continues as normal, but the crisis was affecting everyday life. There were queues outside banks and residents said food prices had gone up, while the street value of the Libyan dinar had fallen dramatically against the dollar.
A fish market near Tripoli's Green Square was mostly empty. The situation is affecting us, said Ismail, a fisherman. All the Egyptian workers who run the boats have left.
GO TO TRIPOLI
In the opposition stronghold of Benghazi, men of all ages gathered next to the courthouse engaged in fierce debates, enjoying their new-found freedom of speech.
We must go to Tripoli and get rid of Gaddafi, shouted one, to murmurs of approval from those around him.
But we have only our shirts to protect us from the cannon, said Ahmed el Sherif, 60, standing on the edge of the group.
The upheaval is causing a humanitarian crisis, especially on the Tunisian border where tens of thousands of foreign workers have fled to safety. But an organized international airlift started to relieve the high pressure human flood from Libya as word spread to refugees that planes were taking them home.