WRAPUP 3-France tells Libya rebels to seek peace with Gaddafi
* French minister: rebels must negotiate peace deal now
* Washington says firm in belief Gaddafi must go
* Differences widening inside Western alliance
* Government troops shell rebels south of Tripoli
(Releads with French defence minister, U.S. statement)
TRIPOLI, July 10 (Reuters) - A French minister said on Sunday it was time for Libya's rebels to negotiate with Muammar Gaddafi's government, but Washington said it stood firm in its belief that the Libyan leader cannot stay in power.
The diverging messages from two leading members of the Western coalition opposing Gaddafi hinted at the strain the alliance is under after more than three months of air strikes that have cost billions of dollars and failed to produce the swift outcome its backers had expected.
French Defence Minister Gerard Longuet signalled growing impatience with the progress of the conflict when he said the rebels should negotiate now with Gaddafi's government and not wait for his defeat.
The rebels have so far refused to hold talks as long as Gaddafi is still in power, a stance which before now none of NATO's major powers has publicly challenged.
"We have .... have asked them to speak to each other," Longuet, whose government has until now been among the most hawkish on Libya, said on French television station BFM TV.
"The position of the TNC (rebel Transitional National Council) is very far from other positions. Now, there will be a need to sit around a table," he said."
Asked if it was possible to hold talks if Gaddafi had not stepped down, Longuet said: "He will be in another room in his palace with another title."
Soon after, the State Department in Washington issued a message that gave no hint of compromise.
"The Libyan people will be the ones to decide how this transition takes place, but we stand firm in our belief that Gaddafi cannot remain in power," the department said in a written reply to a query.
It also said the United States would continue efforts, as part of the NATO coalition, to protect civilians from attack and said it believed the alliance was helping ratchet up the pressure on Gaddafi.
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Gaddafi has been defiantly holding on to power in the face of rebel attacks trying to break his 41-year rule, NATO air strikes, economic sanctions and the defections of prominent members of his government.
With no imminent end to the conflict in sight, cracks are emerging inside the NATO alliance. Some member states are balking at the burden on their recession-hit finances, and many are frustrated that there has been no decisive breakthrough.
But even countries which support a political solution have not answered the question of how a deal can be hammered out when the rebels and their Western backers say Gaddafi must go while the Libyan leader himself says that is not up for negotiation.
Strains over how to proceed in Libya are likely to surface on Friday when the contact group, which brings together the countries allied against Gaddafi, gathers in Istanbul for its next scheduled meeting.
There was no immediate reaction to the French minister's comments from the rebel leadership at its headquarters in the eastern Libyan city of Benghazi.
On the ground, rebel forces trying to march on Tripoli have made modest gains in the past week, but the fighting on Sunday underlined it would a long slog.
Gaddafi's forces launched a heavy artillery bombardment to try to push back rebel fighters who last week seized the village of Al-Qawalish, 100 km (60 miles) south of Tripoli.
Al-Qawalish is a strategic battleground because if the rebels manage to advance beyond it they will reach the main highway leading north into the capital Tripoli.
A rebel fighter in the village, Amignas Shagruni, told Reuters that shells had been landing repeatedly over the past 24 hours from pro-Gaddafi forces positioned a few kilometres to the east. But he said: "No one was hurt, thank God."
During a 20-minute period while Reuters visited the frontline east of Al-Qawalish, at least five shells landed. However, they did not appear to be well targeted, striking random spots in the nearby hills.
Libya has been convulsed by a civil war since February when thousands of people, inspired by revolutions in neighbouring Egypt and Tunisia, rose up against his 41-year-rule.
That rebellion has now turned into the bloodiest of the "Arab Spring" uprisings sweeping the region.
Gaddafi sounded a new note of defiance on Friday. In an audio recording broadcast on state television, he threatened to export the war to Europe in revenge for the NATO-led military campaign against him.
"Hundreds of Libyans will martyr in Europe. I told you it is eye for an eye and tooth for a tooth," he said. "You will regret it, NATO, when the war moves to Europe."
Hundreds of kilometres to the northeast of Al-Qawalish, another force of rebels is also trying to push towards Tripoli, though they too are facing tough resistance.
Fighters from the rebel-held city of Misrata, about 200 km(130 miles) east of Tripoli, have fought their way west to the outskirts of Zlitan, the first in a chain of coastal towns blocking their progress towards the capital.
A spokesman for insurgents who are behind the pro-Gaddafi lines and inside Zlitan itself, said they had mounted their second attack on government troops in a week.
"The revolutionaries inside the town of Zlitan shelled the(pro-Gaddafi) brigades positioned on the coastal road on Sunday at 1:00 a.m. (2300 GMT), killing at least seven people," a rebel spokesman, who identified himself as Mabrouk, told Reuters from Zlitan.
The account could not be verified independently because journalists have not been able to reach the town.
NATO launched its bombing campaign in March after the U.N. Security Council authorised the use of all necessary means to protect civilians who rose up against Gaddafi.
Gaddafi says the rebels are armed criminals and al Qaeda militants. He has called the NATO operation an act of colonial aggression aimed at stealing Libyan oil. (Additional reporting by Peter Graff in Al-Qawalish, Nick Carey in Misrata, Hamid Ould Ahmed in Algiers, John Irish and Elizabeth Pineau in Paris and Jim Wolf in Washington; Writing by Christian Lowe; Editing by Jon Hemming)
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