Libyan government forces assaulting the key city of Ajdabiya outflanked insurgents and cut the road north to the rebel capital of Benghazitoday , rebel sources said amid scenes of chaos in the town.

An AFP reporter saw long lines at filling stations as civilians and some rebels tried to leave eastward to Tobruk, while others were erecting barricades in the streets.

Shelling and air strikes pounded Ajdabiya, the last rebel-held city before Benghazi 160 kilometres (100 miles) away, causing dead and wounded.

Libyan television claimed the town had already fallen to the forces loyal to Gaddafi, as it has done on previous occasions, apparently to spook the rebels and residents of towns still under attack.

Authorities in Tripoli kept up the psychological pressure with messages sent to mobile phones saying, "Soon Ajdabiya will be as safe and calm as it was."

Fighters returning from the front some six kilometres (four miles) to the west said they came under heavy bombardment from Gaddafiforces, and the sounds of rocket fire became louder in the town centre.

Ambulances and trucks bringing wounded to the main hospital became more frequent and more armed rebels were accompanying them.

Two dead people and three critically wounded were brought to the hospital, medical sources said, amid tense scenes as the doctors accused the rebels of abandoning their posts defending the city.

But the fighters insisted that they were simply outgunned byGaddafi 's forces, and it was not clear whether they would make a stand as their commanders had insisted.

In the central square rebels manned anti-aircraft guns pointing down the boulevard along which Gaddafi's troops were expected to appear, as a lone young man brandishing a pre-regime flag screamed defiance.

Loudhailers urged fighters to head for the front as another air strike rocked the city, hitting a four-storey apartment block, damaging the ground floor and wounding six members of a family.

Relative Driss Jbel said three children aged between five and seven, two women and a man had been taken to hospital.

Ambulances continued to bring in the wounded, and a dozen arrived on the backs of trucks. Most were said by medics to be victims of shelling.

Among the wounded was a little boy of about 10 wearing an orange jumper.

Earlier Wajid al-Hasi, 31, was killed when a jet dropped a bomb as he drove by the gateway to the city, sending shrapnel smashing into the back of his car and shattering his skull, witnesses and medics at the hospital said.

The front of the grey saloon was undamaged, but the rear and left side windows were smashed and pieces of the Hasi's skull, brains and bloody scalp plastered the interior. One witness appeared to be in shock.

An angry crowd gathered as doctors at the hospital collected the shreds of tissue into plastic bags from the car that fellow fighters had driven to the hospital with Hasi's body on the back seat.

Shortly afterwards, another ambulance arrived with a young man suffering serious head injuries.

Sherif Layas, 34, who was a marketing manager before taking up a gun to join the revolution, said "We are not afraid but we are unequal."

Layas, wearing a green military hat and fatigues, said he had no body armour and was running out of ammunition with only one magazine-load left on his rifle.

He said that only citizen volunteers were defending Ajdabiya and not defecting army units attached to the revolution.

"We want a no-fly zone and surgical strikes. No one in Libya would object to that. We want NATO to take out Gaddafi's bases," said Doctor Suleiman al-Obeidi who came from a hospital in the northern town of Baida to help out.

"We are civilians. What can we do against heavy weapons? Against tanks, Grad rockets and warships?" the 43-year-old demanded. "Give us tanks, give us planes and we will do it ourselves; we will defeat his machine.

"Unless NATO does this he will slaughter us all."

But leading powers in the Group of Eight earlier today dropped proposals for military intervention and turned to the United Nations to up the pressure on Gaddafi, including by economic means.

General Abdel Fatah Yunis, who resigned as interior minister to join the revolution and now leads its military forces, had said on Sunday that his troops would defend Ajdabiya at all costs.

"Ajdabiya is a vital city because it's a key city. It is a route to the east and Benghazi, and also another route to Tobruk as well as to the south," he said.