Air strikes targeted rebel positions today and outgunned insurgents were forced to retreat but Libyan TV claims that Muammar Gaddafi's forces had retaken key towns in a major offensive were swiftly denied.

The rebels said they had withdrawn from the coastal town of Bin Jawad, occupied yesterdat in an advance westward on Sirte, Gaddafi's home town, after clashes which doctors said left two dead and around 50 wounded.

It was the first time since the uprising against the Libyan leader began on February 15 that the rebels have admitted conceding ground to his forces.

Thousands celebrated in Tripoli as state television channel Allibiya reported that government forces had taken control of the country's third city of Misrata, the key oil centre of Ras Lanuf and even Tobruk near the Egyptian border.

AFP reporters in Ras Lanuf, taken by rebels early yesterday , confirmed the town was still in opposition hands despite being hit by air strikes early today.

But residents in Misrata said government tanks had begun shelling the town and warned of "carnage" if the international community did not intervene.

A rebel spokesman confirmed that Misrata was under intense fire from pro-Gaddafi forces and reported "casualties" but insisted the city was still in rebel hands.

"Gaddafi forces are shelling Misrata randomly. They are using mortars and rockets," said the spokesman.

"They are firing on protesters gathered at Midan Tahrir (Liberation Square)" in the city centre and tanks are also shelling houses as well."

A rebel officer, Colonel Bashir al-Moghrabi, told reporters in Ras Lanuf rebels were also still in control in Zawiyah, west of Tripoli, where fierce battles took place yesterday.

A local doctor said yesterday there had been a "massacre" in Zawiyah and a Sky News journalist said Gaddafi's forces had fired on civilians.

A member of the rebel-appointed council in Tobruk, Fateh Faraj, contacted today by AFP, also said claims that that town had fallen were "not true."

France today condemned the use of force against Libyan civilians and "pays homage to the bravery of populations subjected to violence, in Zawiyah and other Libyan localities," a foreign ministry official said.

Wounded streaming back from Bin Jawad to Ras Lanuf said Gaddafi loyalists lured them into a trap, secreting themselves in homes, mingling with civilians and hunkering down on rooftops.

As the inexperienced rebels armed only with Kalashnikov assault rifle drove on, oblivious to the hidden threat, the ambushers unleashed a massive salvo of fire.

A French journalist shot in the leg told AFP he had been driving with rebel fighters towards Bin Jawad when their vehicle was hit by a hail of bullets.

The rebels had vowed to march on Sirte from Bin Jawad, which was the furthest point AFP saw them deployed along the Mediterranean coast yesterday.

Two attacks by lone warplanes targeted a checkpoint on the eastern edge of Ras Lanuf and a rebel camp set up in a former military barracks in the centre today.

Rebels responded with anti-aircraft fire and there were no immediate reports of casualties, but a huge explosion was heard later in the town.

Britain's Defence Secretary Liam Fox said today that a 'small British diplomatic team' was in Benghazi talking to rebels, after reports the insurgents were holding a British special forces unit and a junior diplomat.

"We are in touch with them but it would be inappropriate for me to comment further on that for reasons I am quite sure you understand," Fox told BBC television.

The Sunday Times newspaper said the Special Air Service (SAS) soldiers, thought to be up to eight men, were captured along with the diplomat they were escorting through the rebel-held east.

In Tripoli around 4,000 people flooded into Green Square. Military and paramilitary forces fired into the air, unconcerned about falling bullets.

"We are shooting to celebrate because we are beating Al-Qaeda. We have won, Al-Qaeda is gone," one soldier told AFP.

Women and children joined the crowds, and an AFP reporter witnessed children as young as seven firing pistols in the air.

Water, biscuits and portraits of Gaddafi were distributed to the crowd.

The rebels scored a diplomatic victory when France today hailed the creation of their "National Council", saying it supported its objectives.

The rebels formed the council yesterdat at a meeting in Benghazi, the rebel stronghold in the east of the North African country.

"The council declares it is the sole representative all over Libya," said former justice minister Mustafa Abdel Jalil, who will chair the 30-member body.

Meanwhile, Gaddafi's government asked the Arab League to reverse a February 22 decision suspending it from the organisation's meetings, Deputy Foreign Minister Khaled Kaaim said.

Gaddafi told the French weekly Le Journal du Dimanche he wanted the United Nations or the African Union to probe the unrest and promised: "We will let this panel work unhampered."

Gaddafi also said three Dutch soldiers captured by his forces in northern Libya during an unauthorised rescue mission were being held prisoner.

In his interview, Gaddafi warned that the violence posing the greatest challenge to his long rule would have serious repercussions for Europe, which has been facing an uphill battle against unauthorised immigration, especially from North Africa and Asia.

"Thousands of people from Libya will invade Europe," he said, "and there will be no one to stop them."

An estimated 100,000 mainly foreign migrants have crossed from Libya into Tunisia since February 20, Tunisian officials said. Many have been evacuated home in an international effort but thousands remain in temporary camps facing growing problems of hygiene.

Elsewhere in the troubled region Yemen's opposition movement vowed today to intensify protests against the regime of President Ali Abdullah Saleh, after the embattled leader refused to resign by the end of the year.

Thousands of demonstrators massed today at Manama's Al-Qudaibiya Palace, where Bahrain's cabinet meets, chanting slogans against the tiny but strategic Gulf state's government and King Hamad.