Tripoli: A group of revolutionaries besieging a cluster of apartment buildings near the compound of Muammar Gaddafi said they believed the man who led Libya for four decades was hiding in the buildings with some of his sons.

Revolutionaries were exchanging fire with Gaddafi loyalists inside the buildings. They did not say why they believed Gaddafi and his sons were inside.

"They are together. They are in a small hole," said one of the fighters involved in the battle, Mohammad Gomaa. "Today we finish. Today we will end that."

Revolutionaries battled pro-Moammar Gaddafi forces Thursday in Libya's east and faced stubborn resistance in the capital while the opposition moved to assert control over the oil-rich country even as the longtime dictator remained at large.

Revolutionaries have seized control of much of Tripoli as Gaddafi's 42-year regime crumbled, but the autocrat has refused to surrender and has vowed from hiding to fight on "until victory or martyrdom".

Opposition leadership has offered a $2 million bounty on Gaddafi's head, and British Defence Secretary Liam Fox said Thursday that Nato was helping in the search for the longtime dictator.

Fox told BBC Radio 4 that Nato was "providing intelligence and reconnaissance assets to help in the hunt", and had been heavily active in carrying out overnight airstrikes against Gaddafi loyalists, but refused to say if British special forces were involved.

Key target

Opposition says one of their key targets now is Gaddafi's hometown of Sirte, about 400 kilometres from Tripoli, but acknowledged that capturing that city would not be easy because Gaddafi's fellow tribesmen were expected to put up a fierce fight.

Opposition leaders have said they were trying to negotiate a peaceful surrender of the city.

Fawzi Abu Ketf, deputy defence minister of the National Transitional Council, said fighting was raging Thursday outside Bin Jawad, 650 kilometres south of Tripoli, but he had no details. Gaddafi loyalists ambushed rebels advancing toward the city on Wednesday, killing at least 20 of them.

Wednesday's attack was carried out by pro-Gaddafi forces who had retreated from the oil city of Ras Lanuf after rebels captured that city earlier this week, said Ahmad Zeleity, a revolutionary commander.

The ambush showed that pro-regime forces retain the ability to strike back even as the revolutionary tighten their control over the nation's capital.

Rebels have seized several parts of Sebha, another Gaddafi stronghold still holding out, including the main commercial Gamal Abdul Nasser street, according to official Adel Al Zintani, who is in daily telephone contact with rebel commanders in the desert city.

He said mercenaries from sub-Saharan African nations who had been paid by Gaddafi have fled the city, but loyal soldiers were continuing to hold firm.

Corinthia Hotel shooting

Shooting also broke out Thursday afternoon outside the Corinthia Hotel, near the Mediterranean seaside. AP Television News showed footage of gunmen firing outside the high walls surrounding the compound.

Ketf said another challenge was the need to supply troops at the front. "The supply lines will be too long and we are short of funds and supplies," he said.

The humanitarian situation there is increasingly difficult, he said, with lengthy power and water outages.

Assets

In Milan, Italian Premier Silvio Berlusconi said Italy was preparing to release $505 million in frozen assets in Italian banks, calling it the first payment. Italy, Libya's former colonial ruler and biggest trading partner, has not disclosed the total Libyan assets held there.

Berlusconi made the announcement after meeting with the leader of Libya's opposition Cabinet, the second stop on a European diplomatic tour by Mahmoud Jibril aimed at securing the release of billions of dollars in frozen Libyan assets.

The Libyan opposition says they urgently need at least $5 billion of those assets to pay state salaries, maintain vital services and repair critical oil facilities.

The UN Security Council, meanwhile, is preparing to vote this week on a resolution that would release $1.5 billion in Libyan assets in US banks that the world body froze to thwart Gaddafi. Analysts estimate as much as $110 billion is frozen in banks worldwide.

Reflecting the continuing unrest in parts of Libya, a Maltese ship sent to evacuate foreigners from Tripoli turned back Thursday after fighting in the Libyan capital made the operation too risky.

The vessel was to evacuate at least 24 foreigners trapped in the Libyan capital, but the Maltese government said the mission was aborted Thursday after it became impossible for people to reach the harbor due to fighting in the capital.

The Geneva-based group the International Organisation for Migration, however, said a ship chartered to rescue hundreds of foreigners in Tripoli had managed to dock there, after waiting offshore for days due to fighting.

The group is "very optimistic that we will be able to carry out the evacuation today", spokeswoman Jemini Pandya said.

Journalists freed

In more positive news, four Italian journalists taken at gunpoint in Libya were freed Thursday in a raid on the house where they were being held, an official said.

Details of the raid, first reported on Corriere della Sera's website, and who conducted it were not immediately available. The Italian Foreign Ministry confirmed that the four were freed, but had no further details.

The four were taken at gunpoint Wednesday by forces loyal to the regime of fugitive Libyan dictator, Muammar Gaddafi. Their Libyan driver was killed.

"They shot the driver dead in front of us. We are fine, but our thoughts are with the driver who died. We have become close friends with him," Claudio Monici of Avvenire, the daily of the Italian bishops conference, told reporters in Tripoli after their release.

The others released include two correspondents from the Milan daily Corriere della Sera and one from Turin's La Stampa.

Arab League seat

The Arab League gave its full backing to Libya's National Transitional Council (NTC) as the legitimate representative of the Libyan people on Thursday and said it was time for Libya to return to its permanent seat on the League's council.

"We agreed that it is time for Libya to take back its legitimate seat and place at the Arab League. The NTC will be the legitimate representative of the Libyan state," the League's Secretary General Nabil Al Arabi told reporters.

The NTC's representative at the League, Abdelmoneim Al Houni, said Libya would resume its League membership at a meeting of Arab ministers on Saturday.

The Arab League suspended Libya's membership in February after Muammar Gaddafi's forces launched a bloody crackdown to try to stop the uprising spreading in the east of the country.

Houni, a former Libyan envoy to the League, defected from Gaddafi during the early days of the revolt. It was the first time the League announced its official recognition of the NTC.

In a statement on Monday, Al Arabi voiced solidarity with the rebel council's efforts. Several Arab governments said they were recognising the NTC this week as they hemmed Gaddafi loyalists into their remaining strongholds in Tripoli.