Muammar Gaddafi's spokesman said today a surrender-by-Saturday ultimatum to the fugitive dictator's henchmen in his home town would be rejected.

Libyan rebels who say they are closing in on Gaddafi issued the ultimatum to loyalists in Sirte to surrender by the weekend or face attack.

"We have a good idea where he is," a top rebel leader said.

But in an overnight phone call to Associated Press headquarters in New York, Gaddafi's chief spokesman Moussa Ibrahim said: "No dignified honourable nation would accept an ultimatum from armed gangs."

Ibrahim reiterated Gaddafi's offer to send his son al-Saadi to negotiate with rebels and form a transitional government.

He also claimed that a missile attack on Sirte yesterday had killed 1,000 people and left scores more injured during public prayers marking Eid. He said 12 missiles were fired, possibly from planes seen circling overhead.

The alleged attack could not be immediately confirmed. The regime has consistently exaggerated casualty tolls.

The rebels, tightening their grip on Libya after a military blitz, have also demanded that Algeria return Gaddafi's wife and three of his children who fled there on Monday. Granting asylum to his family, including daughter Aisha who gave birth in Algeria yesterday, was an "enemy act", said Ahmed al-Darrad, the rebels' interior minister.

Meanwhile rebel leaders insisted they were slowly restoring order in the war-scarred capital Tripoli after a week of fighting, including deploying police and collecting rubbish. Reporters touring Tripoli still saw chaotic scenes, including desperate motorists stealing fuel from a petrol station.

In the capital's Souk al Jumma neighbourhood, about 200 people pounded on the doors of a bank, demanding that it open. Civil servants said they were told they would receive a 250-dinar (£122) advance on their salaries for the three-day Muslim holiday of Eid al-Fitr, which starts today in Libya.

Rebel fighters converging on heavily-militarised Sirte, 250 miles east of Tripoli, gave pro-Gaddafi forces there a deadline of Saturday - the day after the end of the Muslim holiday - to complete negotiations and surrender. After that, the rebels would "act decisively and militarily", said Mustafa Abdul-Jalil, head of the rebels' National Transitional Council.

His deputy, Ali Tarhouni, said: "Sometimes, to avoid bloodshed you must shed blood and the faster we do this, the less blood we will shed."

There has been speculation that Gaddafi is seeking refuge in Sirte or one of the other remaining regime strongholds, among them the towns of Bani Walid or Sabha.

"Gaddafi is now fleeing - and we have a good idea where he is," Mr Tarhouni said. "We don't have any doubt that we will catch him."

Ibrahim said he thought Nato believed Gaddafi was in Sirte "because much of his family and tribe is there".

"Maybe they have been advised by some of the leaders of the rebels to attack the city with such vigour and power in hope that the leader is there praying with his people," he told AP.

Ibrahim would not disclose Gaddafi's whereabouts except to say that he was "in Libya of course" and not planning to leave the country. Ibrahim said he himself was "somewhere south of Tripoli".

About 90 miles west of Sirte, about a dozen armoured, gun-mounted trucks were parked at a staging ground in the desert.

Commander Ismail Shallouf said patrols had gone 30 miles closer to Sirte, and occasionally exchanged fire with Gaddafi fighters. Ahmed Abu Sweira said rebels were waiting for reinforcements for the final push.

On Monday, Nato hit about three dozen Gaddafi military targets in the Sirte area. Nato insists it remains within the bounds of its original mission of protecting Libyan civilians, but appears to be paving the way for advancing rebel forces with its targeted air strikes.

Diplomatic tensions have risen between the rebels and Algeria after the Algerian government agreed to grant refuge to Gaddafi's wife, Safiya, daughter Aisha and sons Hannibal and Mohammed.

In a dramatic episode, Aisha, a lawyer in her mid-30s, gave birth to her fourth child - a girl - as the family escaped.

An Algerian newspaper reported that the exiles, who also included an unknown number of Gaddafi's grandchildren, had waited 12 hours to receive authorisation from President Abdelaziz Bouteflika while Aisha was in labour.

The fate of Gaddafi's son Khamis continues to be in doubt. On Monday, rebel fighters said they believed Khamis, commander of an elite military unit, was killed in a rebel ambush south of Tripoli last week. However, Mr Tarhouni said yesterday that he could not confirm the death.

In all, Gaddafi has eight biological children, a daughter and seven sons.