Libyans have become expert sky watchers. On many days, social media fills with pictures of the latest American drone or spy plane making low passes over Sirte, the local headquarters of Islamic State. There are grainy snaps of the squat, white Lockheed P-3 Orions, and hazier captures of dark drones, while discussion over a twin-engined aircraft that makes figure-of-eight passes could fill a chatroom. With the intensification of bombing of the terror group in Syria, Libya’s sky watchers think airstrikes are imminent.

Speculation about airstrikes heightened last week when the UN reported what intelligence agencies have been saying for months – that Libya has become Isis’s fallback position. More than 800 fighters sent from Libya to battle in Syria and Iraq have now made the journey the other way, as Isis expands its Libyan caliphate.

Last week France flew its first reconnaissance missions over Sirte, joining the drones and spy planes of the United States. This small town on Libya’s central coast was the birthplace of former dictator Muammar Gaddafi – and the scene of his brutal execution. During his tyrannical rule, Gaddafi turned what was a sleepy coastal village into a town of garish concrete, hoping to fulfill a megalomaniac dream to make it the capital of a United States of Africa.

Now the town’s giant concrete Ouagadougou conference centre is bedecked with black flags. The grounds outside are bloody execution sites for the terrorists who have brought Raqqa-style horror to north Africa. Recent escapees tell of a litany of horrific acts, including crucifixions and townsfolk hanged from mechanical diggers and lampposts, some accused of being apostates, some of being spies.

Barbers are banned from shaving off beards and women are forced to wear dark robes, while zealots ensure that music is banned from radio stations. “People live for one thing, which is to get out,” said one resident, newly arrived in Tripoli, the capital far to the west.

Sirte’s airbase, the biggest in Libya, is being readied by Isis to take suicide planes, while 85 of the town’s children have been paraded as “suicide cubs”, ready to detonate themselves for the cause.

An image from Twitter purporting to show an Isis ‘child radicalisation program’ in Sirte, Libya. Photograph: Twitter

Jihadism has a long history in Libya. Members of the Libyan Islamic Fighting Group staged an unsuccessful guerrilla rebellion against Gaddafi in the 1990s. That uprising was crushed, and its members fled to Afghanistan and Iraq. With the removal of Gaddafi in the bloody 2011 Arab Spring revolution, the jihadis came home.

The first sign of this was Ansar al-Sharia, or Partizans of Islam, which followed up attacks on British and French diplomats with the killing in September 2012 of the US ambassador Chris Stevens in the American consulate in Benghazi.

Then came Isis, seizing its opportunity in the summer of last year when elections were followed by civil war after Libya Dawn, a coalition of Islamist and Misratan forces, seized Tripoli. The elected government fled to the eastern city of Tobruk and fighting has since raged across the country.

Taking advantage of the chaos, Isis quickly established a foothold in the eastern coastal town of Derna, spearheaded by 300 militants of the al-Battar Brigade, battle hardened in Syria.

But Sirte was the true prize, offering an airport, seaport and something Isis wanted more than anything else: oil. South of the town is the massive Sirte Basin, the centre of Libya’s oil industry. In a few months its units conquered the town and pushed south into the Sirte Basin, taking a 100-mile stretch of coastline. In January, it killed 22 Christians, 21 of them Egyptians, on the Sirte shore, triggering Egyptian airstrikes.

Many Ansar al-Sharia units defected to Isis, gifting it a base at Sabratha, 60 miles east of Tunisia’s border. Tunisia says Seifeddine Rezgui Yacoubi, the gunman who killed 38 tourists, 30 of them British, at Sousse, was trained at Sabratha, as were the gunmen who attacked tourists in the capital’s Bardo museum last March.

Isis in Libya has had reverses. In June, Derna youths, backed by a militia loyal to al-Qaida, rose up, pushing its units out of the town into the Green Mountain to the south. But a similar uprising in Sirte in August was brutally put down. After Isis regained control of the rebel district, survivors said, gunmen set fire to the local hospital, burning 22 patients alive. Last week, Isis launched its most audacious attack so far, striking at Ajdabiya, 70 miles east of Sirte, and threatening Libya’s four key oil ports. “Another assassination on Ajdabiya tonight, IS expansion,” one desperate Libyan tweeted last Friday night. “Wake up Libyans!”

The main square of Ajdabiya, at the time of the uprising against Gaddafi in 2011. Photograph: Gianluigi Guercia/AFP/Getty Images

Fears are building among Libya’s neighbours. Tunisia, reeling from the slaughter last month of 12 presidential guards by a Libyan-trained bomber, has closed its border with Libya and on Friday banned Libyan planes from the capital, fearing suicide attacks.

In fact, alarm bells about Isis expansion in Libya have been ringing all year. In the summer, the European Union high representative, Federica Mogherini, warned: “In Libya, there is the perfect mix ready to explode and in case it explodes, it will explode just at the gates of Europe.”

In October, Wolfgang Pusztai, Austria’s former Libya defence attaché, told the British parliament’s foreign affairs committee: “The more Islamic State is put under pressure in the Middle East, the more active it will be in Libya.”

Loudest of all has been France’s defence minister, Jean-Yves Le Drian, issuing periodic warnings that Libya has become the “hub” for Isis to supply terrorists and weapons to affiliated groups in Algeria and Mali and to Boko Haram in Nigeria.

Sources in Paris say Le Drian agreed to “go quiet” in the summer, as Europe put its faith in a UN mediation process, hoping that a newly united Libyan government could turn its guns on Isis. But those talks collapsed amid acrimony in October, the UN discredited and, even before the Paris attacks, talk in foreign capitals had turned to direct action.

Last week, the minister again sounded the alarm, telling a French magazine: “We see foreign jihadis arriving in the region of Sirte who, if our operations in Syria and Iraq succeed in reducing the territorial reach of Isis, could tomorrow be more numerous.”

The US has already struck. In June, two F-15s bombed what it said was an al-Qaida gathering at Ajdabiya. In November, the jets struck again, hitting Derna, with the Pentagon claiming to have killed a prominent Isis leader.

But pinpoint strikes have failed to slow the group’s expansion, and the possible loss of Ajdabiya will be a disaster for Libya, cutting off oil ports and the gas fields that generate electricity, a move that the London-based oil expert John Hamilton says would mean “game over” for the economy.

Officials from the American military’s African Command, Africom, based in Stuttgart, have been visiting the region and, should the political decision be made, western forces are already deployed in strength around Libya’s borders. Along with drones and spy planes, the US has bombers and Marine helicopter-borne units stationed in Spain and Italy. More US drones operate from two bases in Niger, guiding a 3,000-strong force of French paratroopers, Operation Barkhane, on the southern Libyan border against jihadi convoys passing out of the country.

RAF Tornados and Typhoons, newly arrived in Cyprus, are within strike range of Libya, as are jets on the French aircraft carrier Charles de Gaulle. And a dozen European warships are off the Libyan coast, currently tasked with an ineffective mission to intercept the country’s people smugglers.

But the military option comes with risks. Isis bases at Derna, Sirte and Sabratha would be obvious targets but, as in Syria, Isis units in Libya can melt into the civilian population. Hours after the US Derna strike last month, Sirte residents reported Isis gunmen forcing their way into civilian homes, calculating that US jets would not bomb them for fear of civilian casualties.

One crumb of comfort for western planners is that Isis has yet to become a mass movement in Libya. In what is a tribal-based society, the population is largely immune to calls to join a worldwide caliphate. Set against that are the continuing arrival of foreign volunteers from Tunisia, Sudan and Yemen.

As in Syria, only ground forces are likely to decisively crush Isis. Western diplomats, working out of Tunis, with Tripoli too dangerous, are continuing to try to persuade Libyans to unite against the terrorist threat. But the French jets and the US drones in the skies over Sirte are vivid proof that another narrative is taking shape.