Muammar Qaddafi’s forces started a sustained aerial barrage on the eastern Libyan town of Ajdabiya today, sparking a panicked retreat of rebel militiamen and civilian families from a city that rebel leaders had insisted was their line in the sand.

Rocket fire and air strikes repeatedly hit the densely packed town of 100,000. “The rockets destroyed two houses on my block,” says an Ajdabiya resident by phone. “Some of my neighbors must have died. The international community has sold us to Qaddafi.”

Dozens of rebel cars and pickup trucks withdrew from a town that yesterday they were insisting they’d fight desperately to hold, since just east of it is a network of roads that act as a gateway to liberated eastern Libya. “We have to hold on here,” Saheer al-Saidi, a militiaman at a rebel command post inside town, said yesterday. “Qaddafi will be arresting and killing thousands if we lose.”

In the early evening, rebel leaders claimed they still had forces inside the city and residents said there were no signs of combat. Members of uprising's national council in Benghazi said that Ajdabiya had not fallen, though they've provided inaccurate reports about the situation in other towns in the past.

Meanwhile, the international community remains undecided over imposing a no-fly zone over eastern Libya. A G8 meeting in Paris yesterday ended with no agreement on intervening even as Mr. Qaddafi’s ground-based weapons advanced within striking distance of a major eastern population center.

Tough talk meets reality

The rebel bravado appears to have butted up against the hard reality of a foe with overwhelmingly superior weapons.

“There are only two possibilities: Surrender or run away," Qaddafi told Italy’s Il Giornale newspaper. His forces dropped leaflets yesterday on Ajdabiya that said much the same, promising the city “would soon be cleansed of armed gangs … we’re coming.”

About 90 miles east of Ajdabiya in the rebel headquarters of Benghazi, the latest setbacks have spread panic among the 1 million residents. Some officials in the interim rebel government are making arrangements for their families to leave the country.

Still, Libyan rebel leaders and militia commanders say they have started arresting forces loyal to Qaddafi in eastern Libya and are preparing a defense of Benghazi – much as they said they were preparing a defense of Ajdabiya.

Qaddafi forces enter Ajdabiya

Yesterday afternoon, senior rebel generals – defectors from Qaddafi’s forces – held a conclave in Ajdabiya, and their aides insisted that not only were plans being drawn up to defend the city, but that they were in the midst of a successful counterattack at Brega, about 50 miles west.

This morning, rocket fire, tank fire, and warplanes assaulted a rebel strongpoint on the highway linking Ajdabiya to Brega, and the rebels withdrew into the city. That wasn’t surprising. But the rebel militia – most of whom were students, or bakers, or unemployed a month ago – promised tough urban combat in defense of the population center.

Then this afternoon, one witness said he saw Qaddafi troops in the town itself. The battle for Ajdabiya appears to have ended before it really began, though reports from the town are still confused and uncertain. Some rebel units may still be hiding in the town, for instance.

But for now, the situation looks grim. Rebels yesterday were insisting that taking a town like Ajdabiya would require a commitment of ground forces from Qaddafi that they would oppose.

Instead, they seem to have been driven from town by the same stand-off weapons Qaddafi has used with such success along the desert road between Ajdabiya and Sirte, Qaddafi’s hometown about 150 miles west.

Al Jazeera reports today that the Tripoli-based 32nd brigade, commanded by Qaddafi’s son Khamis, has sent some of its units east to join the fight. The brigade, probably the best-equipped force in Libya, has been largely involved in fighting in towns like Misrata and Zawiyah close to Tripoli.

Ajdabiya – a crucial crossroads

From Ajdabiya west along the coast, there is only one real road until reaching Qaddafi’s hometown of Sirte – a pro-government stronghold about 150 miles away. But east from Ajdabiya, the road network branches out, with a good highway running straight through the desert to Tobruk, and secondary roads that could help Qaddafi’s forces avoid being bottlenecked.

Some fear that Benghazi could be effectively encircled. Though it has a deep-water port, the city’s power supply relies on a gas pipeline that runs from Brega that Qaddafi might chose to shut down.

Talking to senior members of free Libya’s civilian militia, it’s hard to know sometimes if they’re fooling themselves about the strength of their own position.

Yesterday, multiple rebel commanders in Ajdabiya insisted they’d retaken Brega, a key petrochemicals complex about 50 miles west, though they admitted there was some fighting as they went house to house looking for members of Qaddafi’s forces.

But late last night, an aide in the civilian government in Benghazi said the commanders were overstating the rebel’s position in Brega. “I think the best way to put it is that Brega is in nobody’s hands,” he said, asking not to be named. This morning, Qaddafi was peppering the outside of town with rocket fire using rockets with a range of about 20 miles.

Rebels arrest Qaddafi's secret police, special forces

The rebels insist they have laid plans to stop Qaddafi’s men. They say they have teams ready to disrupt Qaddafi's supply lines if his forces race east. And in recent days they’ve begun detaining members of Qaddafi’s secret police who remained in Ajdabiya and Benghazi after rebels seized control in February, as well as some special forces units they say have been infiltrating into the area.

Mohammed al-Majbouli, a rebel commander in Ajdabiya, claimed yesterday that dozens of Qaddafi soldiers have been arrested in and around the city in recent days. At a command post in town in what’s usually an elementary school, a handful of Qaddafi soldiers were in custody.

Mr. Majbouli also says that on Sunday he personally oversaw the arrest of four men who confessed to Saturday's murder of Al Jazeera cameraman Ali Hassan al-Jaber outside Benghazi. Majbouli said the men were from the 32nd Brigade and that they’d infiltrated into the east posing as rebels.

He said they were sleeping in a white, late-model Toyota pickup decorated with the large, independence-era flag that the rebels have adopted as their own (Qaddafi replaced that flag with one of his own design) and that they had five guns between them. But his account also had odd details, such as saying that two of the guns captured with the men had “poison” bullets in them.

Rebel officials in Benghazi said they’d heard nothing about the arrests of Mr. Jaber’s killers.

Still, the rebel militias are clearly rounding up Qaddafi supporters they worry could emerge from hiding or commit acts of sabotage. “Yes I can confirm arrests are happening,” says one civilian aide to the rebel government in Benghazi. “We have to prepare for a possible attack. It doesn’t look like the international community will help us, so we need to be ready.”