Libyan rebel commander killed by allied militia (Reuters)

BENGHAZI, Libya (Reuters) – Libyan rebels say the gunmen who shot dead their military chief were fighters allied in their struggle to overthrow Muammar Gaddafi, raising questions over divisions and lawlessness within rebel ranks.

The assassination of Abdel Fattah Younes, apparently by his own side, has hurt the opposition just as it was winning broader international recognition and launching an offensive against Gaddafi's forces in the west of the country.

After 24 hours of confusion, rebel minister Ali Tarhouni said Younes had been killed by fighters who went to fetch him from the front and that his bullet-riddled and partially burned body was found at ranch near the rebel capital of Benghazi.

Tarhouni said a militia leader had been arrested and had confessed that his subordinates had carried out the killing.

"It was not him. His lieutenants did it," Tarhouni told reporters late on Friday, adding that the killers were at large.

Younes had been part of Gaddafi's inner circle since the 1969 coup that brought the Libyan colonel to power and was interior minister before defecting to the rebels in February.

Many rebels had been uncomfortable working under a man who had been so close to Gaddafi for 41 years, and rebel sources said on Thursday Younes had been recalled over suspicions that he or his family were secretly in contact with Gaddafi.

Rebels were divided over who had killed Younes, some suspecting his execution was ordered by rebel leaders for treason, many believing he was killed by Gaddafi supporters who had infiltrated rebel ranks and still others suggesting a rebel splinter group had acted alone.

Whatever the truth, the killing deepens concerns among the rebels' Western backers, keen to see them prevail in a five-month-old civil war but frustrated by their lack of unity and nervous about the influence of Islamists.

The United States, which like some 30 other nations has formally recognized the opposition, called for solidarity.

"What's important is that they work both diligently and transparently to ensure the unity of the Libyan opposition," State Department spokesman Mark Toner said in Washington.

REBELS TARGET GADDAFI STRONGHOLD

Rebels who rose up against Gaddafi in February have seized swathes of the country but remain poorly equipped and are still far from ousting him, despite support from NATO airstrikes.

Anti-Gaddafi forces said on Saturday they had encircled the Libyan leader's last stronghold in the Western Mountain region and hoped to seize it soon.

Rebel tanks fired at Tiji, where an estimated 500 government troops are stationed, and said the blasts could be heard from the nearby town of Hawamid, which was captured on Thursday.

"We have Tiji surrounded and we hope to take it by the end of the day," rebel commander Nasir al Hamdi, a former colonel in Gaddafi's police force, told Reuters as gunfire crackled in the distance and he surveyed a battleground scattered with tankshell casings and government anti-aircraft bullets.

NATO airstrikes continued in western Libya overnight. NATO said it had bombed three satellite dishes in Tripoli to stop "terror broadcasting", but Libyan state TV remained on the air.

In the east, confusion reigned over who had killed Younes.

Rebel fighters said members of the February 17 Martyrs' Brigade, a rebel group that fights on the front and helps enforce security in the rebel-held east, had collected Younes from the frontline near the oil town of Brega on Thursday.

Younes knew and trusted the men who came to fetch him and went without a struggle when they explained they had a judge's order to take him to Benghazi for questioning, the rebels said.

The February 17 Martyrs Brigade is made up largely of civilian volunteers led by military commanders and is widely used by the Transitional National Council for some policing duties.

However, Tarhouni, the rebel minister, said it was not this group but another militia, the Obaida Ibn Jarrah Brigade, who had killed Younes.

Locals said the Obaida Ibn Jarrah Brigade was mainly comprised of former prisoners of Gaddafi's notorious Abu Salim prison in the capital Tripoli, who had always distrusted Younes.

Named after one of the companions of Islam's Prophet Mohammed, the group is likely to have Islamist leanings.

One rebel commander, who asked not to be named, said Islamists whom Younes had targeted as interior minister may have killed him in retaliation.

"Some of those Islamists are now fighting with the rebels and they have always refused to fight under Younes's command and have always viewed him with suspicion," he said.

"I don't think the investigation will lead anywhere. They don't dare to touch the Islamists."

The government in Tripoli, which has always warned of Islamist influence in the east, said al Qaeda was to blame.

Further complicating an already murky situation, some Libyans said they feared that Younes' death would trigger a bloody tribal feud. At the funeral on Friday, his Obeidi tribe pledged allegiance to the rebel cause.

But in an apparent effort to calm nerves among Younes' relatives, a rebel source said that he could be replaced by Suleiman Mahmoud al-Obeidi, a member of the same tribe.

Another leading candidate to take over as military chief was Khalifa Heftar, who lost an early contest with Younes over leadership of the rebels' military campaign, the source said.

The longer the war drags on, the further eastern Libya appears to slip into lawlessness, raising questions about what kind of Libya could emerge if and when Gaddafi goes.

Tarhouni told reporters on Friday night that an armed gang had attacked a prison, helping about 300 former Gaddafi soldiers and loyalists to escape.

(Additional reporting by Michael Georgy in Hawamid; Mussab Al-Khairalla in Misrata; Missy Ryan in Tripoli; Joseph Nasr in Berlin; Hamid Ould Ahmed in Algiers; writing by Lin Noueihed; editing by Alistair Lyon)

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Mystery surrounds killing of Libyan rebel army head (Reuters)

BENGHAZI, Libya (Reuters) – Libya's rebel military commander was shot dead in an incident shrouded in mystery, dealing a blow to the Western-backed forces struggling to topple Muammar Gaddafi.

Rebels said Abdel Fattah Younes, long a member of the veteran leader's inner circle before defecting in February, was shot by assailants on Thursday after he had been summoned from the battlefield for unspecified talks with other rebel leaders.

The killing of such a senior figure is an embarrassment and a setback for the rebels regardless of who was responsible -- Gaddafi agents apparently able to strike deep in rebel inner circles, or his own side. There are known to be stark divisions between Gaddafi defectors and those who never worked with him.

The rebels did not say who killed Younes or where. His death coincided with a new rebel offensive in the west and further international recognition for rebels, which they hope will help unfreeze billions of dollars in Libyan state funds.

On Friday, weeping relatives and supporters brought his coffin into the main square of the rebel stronghold of Benghazi to mourn him.

"We got the body yesterday here (in Benghazi), he had been shot with bullets and burned," Younes's nephew, Abdul Hakim, said, crying as he followed the coffin through the square.

"He had called us at 10 o'clock (on Thursday morning) to say he was on his way here."

RUMOURS OF SECRET TALKS

Officials would not give details of why Younes had been recalled to Benghazi from the front line near the oil port of Brega for questioning. Rumors had circulated in Benghazi that he had held secret talks with the Gaddafi government.

"If the Rumors that General Younes was feeding information to Gaddafi were there then it would make sense that some rogue elements might attempt to assassinate him," said Alan Fraser, an analyst with London-based risk consultancy AKE.

Rebel defense minister Omar Hariri told Reuters his death was still being investigated and the loss would be great.

In Benghazi relatives vowed allegiance to the rebels' political leader.

"A message to Mustafa Abdel Jalil: We will walk with you all the way," nephew Mohammed Younes told hundreds of mourners in the main square.

But at the funeral later, worried mourners expressed fears he may have died at the hands of other rebels.

Seraj, a soldier who described himself as a relative, said he had heard that Younes and two other army officials killed with him had gone without a fight with men who had summoned them to Benghazi. "Later we heard that he was killed," he said.

Nephew Hakim said another coffin brought into the square by a crowd of men, some in military fatigues and some with rifles, held the body of one of the other men killed with Younes.

"It seems this was an assassination operation organized by Gaddafi's men," said London-based Libyan activist Shamis Ashour. "There certainly was treason, a sleeping cell among the rebels."

"The alternative, which is equally possible," said another analyst, Shashank Joshi, "is summary execution by rebels, an internal act of decapitation by the rebels themselves."

Joshi, of London's Royal United Services Institute, said this explanation would highlight divisions in rebel ranks already known to exist, and put a question mark over the rebels' reliability as partners for Western states.

"All these things would humiliate governments that have supported the rebels. Particularly Britain, which came late to the fray, partly for reasons like this," he said.

One rebel commander said Islamists may have been to blame.

Libyan state TV named a rebel it said had killed Younes.

Younes, from eastern Libya where the rebels are strongest, was Gaddafi's interior minister but swapped sides to become the military chief in the rebel Transitional National Council, whose political leader Jalil announced his death.

Jalil said the killers were still at large but added:

"The head of the armed cell, to which the accusing finger points and a member of which carried out this individual cowardly crime, has been arrested." He gave no details.

Younes, who was involved in the 1969 coup that brought Gaddafi to power, was not trusted by all rebel leaders due to his previous role in cracking down on dissidents.

CAMPAIGN BLOW

His death is likely to be a severe setback to a movement that has won the backing of some 30 nations -- most recently Britain and Portugal -- but is laboring on the battlefield.

Hariri, the rebel defense minister, visited the front line in western Libya on Friday. At a nearby checkpoint he told Reuters Younes's death was still being investigated.

"Of course this will have an impact on the rebels, after all we have lost a key leader," he said. "But they will recover, and there will be other leaders."

Analyst David Hartwell of IHS in London said:

"He was one of the few credible senior opposition military commanders and he has been a key figure in helping stabilize and re-organize rebel fighters."

Fighters on the front line near the town of Misrata said they viewed Younes as a martyr and would avenge his death.

"It will be an extra motive for us in the fight against the tyrant," said Khaled al-Uwayyib.

Rebels took swathes of Libya early on after rising up in February to end Gaddafi's 41 years of domination of the oil-producing North African state but have made few recent advances despite the support of NATO air strikes.

They said they had seized several towns in the Western Mountains on Thursday but are yet to make a major breakthrough.

A rebel commander near Ghezaia told Reuters on Friday that around 100 insurgents had taken control of the town, from which Gaddafi forces had dominated plains below the mountains.

Reuters could not go there to confirm the report as rebels said the area could be mined. But looking through binoculars from a rebel-held ridge near Nalut, reporters could see no sign of Gaddafi's forces in Ghezaia.

Another rebel commander said the settlements of Takut and Um al Far had also been seized.

With prospects fading for a negotiated settlement, the five-month-old civil war will grind on into the Muslim holy month of Ramadan in August.

Nick Witney, analyst at the European Council on Foreign Relations in Paris, said the West had hoped for a "nice simple conflict" with right prevailing, but this had ignored Libya's nuanced tribal-based politics.

"It was a brave and right thing to do," he said. "But I feel we've lost the moral high ground a bit and wandered into something that will be prolonged and messy, but we're not in a position to sort out."

(Additional reporting by Michael Georgy near Ghezaia; Mussab Al-Khairalla in Misrata; Alexandria Sage in Paris; Samia Nakhoul, Avril Ormsby and Clare Kane in London and Missy Ryan in Tripoli; writing by Richard Meares; editing by Andrew Roche)

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Gaddafi can stay in Libya if he quits: rebel chief (Reuters)

BENGHAZI, Libya (Reuters) – Muammar Gaddafi is welcome to live out his retirement inside Libya as long as he gives up all power, Libya's rebel chief told Reuters on Sunday in the clearest concession the rebels have so far offered.

Gaddafi has fiercely resisted all international calls for him to go and vowed to fight to the end, but members of his inner circle have given indications they are ready to negotiate with the rebels, including on the Libyan leader's future.

Gaddafi is still holding on to power, five months into a rebellion against his 41-year rule and despite a NATO bombardment and an International Criminal Court arrest warrant for crimes against humanity.

"As a peaceful solution, we offered that he can resign and order his soldiers to withdraw from their barracks and positions, and then he can decide either to stay in Libya or abroad," rebel leader Mustafa Abdel Jalil said in an interview.

"If he desires to stay in Libya, we will determine the place and it will be under international supervision. And there will be international supervision of all his movements," said Jalil, who heads the rebels' National Transitional Council.

Speaking to Reuters in his eastern Libyan stronghold of Benghazi, Abdel Jalil, Gaddafi's former justice minister, said he made the proposal about a month ago through the United Nations but had yet to receive any response from Tripoli.

He said one suggestion was that Gaddafi could spend his retirement under guard in a military barracks.

The conflict in Libya is close to deadlock, with rebels on three fronts unable to make a decisive advance toward the Libyan capital and growing strains inside NATO about the cost of the operation and the lack of a military breakthrough.

Previous attempts to negotiate a peace deal have foundered, but some analysts say Gaddafi's entourage -- if perhaps not the Libyan leader himself -- may look for a way out as air strikes and sanctions narrow their options.

Gaddafi's daughter Aisha said last week her father would be prepared to cut a deal with the rebels though he would not leave the country, and his son, Saif al-Islam, has said Gaddafi would step down if that is what the people of Libya want.

GADDAFI THREATS

U.S. Secretary of State Hillary Clinton on Saturday stepped up Western calls on Gaddafi to quit, brushing off his threat to attack Europeans in their homes and offices.

"Instead of issuing threats, Gaddafi should put the well-being and the interests of his own people first and he should step down from power and help facilitate a democratic transition," Clinton told reporters on a trip to Spain.

In an address relayed to some 100,000 supporters in Tripoli's Green Square on Friday, Gaddafi urged NATO to halt its bombing campaign or risk seeing Libyan fighters descend on Europe "like a swarm of locusts or bees."

"Retreat, you have no chance of beating this brave people," Gaddafi said.

"They can attack your homes, your offices and your families, which will become military targets just as you have transformed our offices, headquarters, houses and children into what you regard as legitimate military targets," he said.

A rebel spokesman in Misrata, about 200 km (130 miles) east of Tripoli, said two rebel fighters had been killed on the outskirts of the city, where they are struggling to push back government forces and advance on the capital.

"The (pro-Gaddafi) brigades heavily bombarded Dafniyah and Bourouia last night. Two revolutionaries were martyred and 12 others wounded," the spokesman, who identified himself as Oussama, said from Misrata.

OIL FACILITIES

In Tripoli, a senior source in Gaddafi's government said there was reliable intelligence indicating the rebels were planning to attack oil export terminals in the eastern towns of Brega and Ras Lanuf.

"The Libyan government will do whatever (possible) to prevent such attacks," the source, who did not want to be identified, told Reuters.

"It urges international oil companies as well as international insurance companies to put pressure on their governments to force the rebels, who are supported by NATO, to stop their destructive operations," said the source.

The conflict has already halted oil exports from Libya, helping push up world oil prices to over $110 per barrel. Most oil facilities have escaped major damage in the fighting.

A document seen by Reuters showed African Union leaders had agreed on Friday that member states would not execute the international arrest warrant for Gaddafi.

The decision left open the possibility that he could go into exile in one of the African Union's 53 nations.

The grouping also offered to host talks on a ceasefire and a transition to democratic government, but did not call on Gaddafi to step down and left open whether he had a future role.

That is likely to disappoint Western powers, which had been urging African states to send an unequivocal message to the Libyan leader to quit.

Abdel-Hafiz Ghoga, vice president of the Benghazi-based rebel council, told Reuters he rejected the African Union ceasefire proposal.

"It includes nothing concerning our demands. We are only demanding one thing: Gaddafi's resignation ... We can gain freedom and democracy only if Gaddafi steps down.

(Additional reporting by Hamid Ould Ahmed in Algiers, Lamine Chikhi and Lutfi Abu-Aun in Tripoli, Tarek Amara in Tunis and David Lewis in Malabo; Writing by Christian Lowe; Editing by David Stamp)

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Greek rebel lawmakers may block austerity: deputy PM (Reuters)

ATHENS (Reuters) – Greece's deputy prime minister warned on Sunday that rebel lawmakers may block some reforms sought by international lenders, though parliament will probably back an overall austerity package this week to avert national bankruptcy.

Adding to Socialist Prime Minister George Papandreou's dire problems, the conservative opposition rejected appeals from the government and senior European Union politicians to vote in favor of the five-year plan.

Parliament is due to start debating on Monday the programme of tax increases and spending cuts worth 28 billion euros. Papandreou needs parliamentary approval this week to secure the next payment under a 110-billion euro EU/IMF bailout.

Deputy Prime Minister Theodore Pangalos told Spanish newspaper El Mundo he was optimistic about overcoming discontent in his PASOK party to win a first round of general votes on tax and spending targets and the creation of a privatisation agency.

But he was more cautious about whether the government could push through further enabling legislation on individual budget measures and privatisation of specific state assets.

"I think the package of short and medium-term measures with which we basically hope to establish the framework to undertake reforms will be approved without difficulty," Pangalos told the newspaper in the interview published on Sunday.

Approval of specific laws to enact painful fiscal reforms and privatisations may be more difficult to achieve, he said.

"That's where we may have problems. I don't know whether some of our legislators will vote against it. It's possible."

Without the next 12-billion euro tranche of funding from the IMF and European Union, Greece faces the prospect next month of becoming the first euro zone country to default, sending shockwaves through a fragile global financial system.

But many Greeks who have lost jobs or seen their real income decline by nearly one-fifth over the last two years have reacted angrily to measures they say fail to target wealthy tax evaders whom they regard as responsible for Greece's plight.

Papandreou's PASOK party has seen its slender majority whittled down by five defections over the last 13 months, leaving it with 155 seats in the 300-member parliament.

In a rare piece of good news for Papandreou, one of the two PASOK legislators who announced they would vote against the package appeared to be wavering on Sunday after holding talks with Finance Minister Evangelos Venizelos at the weekend.

"One moment I veer toward a 'no', the other toward a 'yes'. I will make a last-minute-decision," Thomas Robopoulos told Reuters. A third Socialist MP has said he will support the deal only if Venizelos gives him assurances on certain measures.

NATIONAL STRIKE

With Greece unable to return to international bond markets next year, as foreseen under its EU/IMF programme, European leaders are working on a new bailout of a similar size, including a contribution from private sector banks which would agree to a "voluntary" rollover of their holdings of Greek debt.

Euro group president Jean-Claude Juncker, the prime minister of Luxembourg, said on Sunday that the size of this private sector contribution would be discussed at a euro zone finance ministers' meeting in early July.

Ramping up pressure on the government, unions have called a two-day national strike from Tuesday. Many companies, including the main electricity group PPC which is slated for partial privatisation next year, have started rolling stoppages.

Pangalos, who after a cabinet reshuffle this month shares his deputy premier's title with Venizelos, said he believed the conservative opposition would vote in favor of some measures.

But New Democracy leader Antonis Samaras turned a deaf ear to the appeals from home and abroad to support the package, saying the painful measures would only deepen Greece's worst recession in 37 years.

"You can't ask for more taxes in an already overtaxed country, in a market that has been sucked dry, with economic activity at zero and a huge recession," he said in a statement.

Greek ministers and policymakers had urged legislators to approve the austerity package, adding to calls from European leaders to avoid a crisis in the 17-member euro zone.

German Finance Minister Wolfgang Schaeuble urged the Greek parliament to approve the measures, warning that the EU would not relax this condition for disbursing the next aid tranche.

"The stability of the entire euro zone would be in danger and we would need to quickly ensure that the risk of contagion for the financial system and other euro area countries would be contained," he told German Sunday newspaper Bild am Sonntag.

Venizelos, a Socialist party baron given the finance portfolio in the cabinet reshuffle, clinched the agreement of EU and IMF inspectors on Thursday to a raft of measures which he hopes can put government finances back on an even keel after it failed to meet targets under its international programme.

The steps include a one-off solidarity levy on income, a rise in heating fuel tax and the introduction of income tax even for low earners on wages of 8,000 to 12,000 euros a year.

A peaceful crowd of around 1,000 people gathered on Sunday in Syntagma square outside parliament, which was protected by a line of riot police.

With youth unemployment running at around 40 percent, many of those who have taken to the streets in protest or camped in Syntagma over the last month are young people who fear the measures will worsen their dim economic prospects.

"The choice is not between voting for the measures or defaulting, but between economic and social bankruptcy on the one hand and growth and social cohesion on the other," said the Left Coalition, a small opposition party, in a statement.

(Additional reporting by Tracy Rucinski in Madrid; editing by Ralph Boulton)

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