WRAPUP 5-Libya rebels regroup but battle exposes weakness
* Anti-Gaddafi fighters retake village south of Tripoli
* Gaddafi vows to fight on
* Fighting reported in Brega, Ajdabiyah
* China to skip Friday's meeting of Libya contact group
(Updates with Libyan spokesman, paragraphs 11 and 17)
By Peter Graff
AL-QAWALISH, Libya, July 14 (Reuters) - Libyan rebel fighters prepared for a new offensive south of Tripoli on Thursday but tactical errors raised new questions about whether they will be able to march on the capital.
Western states are frustrated by a five-month rebel campaign that -- despite support from NATO warplanes -- has failed to overthrow Libyan leader Muammar Gaddafi, and some governments are now looking instead to talks as a way out of the conflict.
Gaddafi himself vowed to fight on.
In an audio speech carried on Libyan television, which was broadcasting a rally that gathered tens of thousands of supporters in the town of Al-Ajaylat, 80 km (50 miles) west of Tripoli, Gaddafi said: "I too will redeem you with my own life ... I will fight until the end."
Denouncing French President Nicolas Sarkozy, an early backer of the NATO bombing campaign, as a war criminal, Gaddafi said: "The end of NATO will be in Libya ... The end of the European Union will be in this battle."
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About 100 km (60 miles) west of the capital where Gaddafi has his main stronghold, rebel commanders in the village of Al-Qawalish said they were massing their forces and preparing to advance east towards the town of Garyan, which controls access to the main highway into the capital.
But only a day earlier, the handful of rebels defending Al-Qawalish ran out of ammunition and fled when forces loyal to Gaddafi staged a surprise attack. The rebels took back the village before nightfall, with the loss of seven men.
"We came yesterday and we stayed here and we said we are not moving until the place is secure," said one rebel fighter who was manning a machine gun and gave his name as Tommy. "This mistake is not going to happen again. We're not going home."
The fighting exposed the limitations of a rebel force which lacks a clear command structure and relies on civilian volunteers who are committed to bringing down Gaddafi but have little or no military training.
In the coastal oil town of Brega in the east, Al-Arabiya television said rebels helped by NATO warplanes had attacked the town from land and sea.
A Libyan government spokesman said government forces had defeated the attack.
Earlier the Arab network Al Jazeera said one person had been killed and an unspecified number of wounded after pro-Gaddafi forces bombarded the nearby town of Ajdabiyah.
The conflict in Libya started out as a rebellion against Gaddafi's 41-year-rule. It has now turned into the bloodiest of the "Arab Spring" uprisings convulsing the region and has also embroiled Western powers in a prolonged conflict they had hoped would swiftly force Gaddafi out of power.
The Russian presidential envoy who has been trying to broker a peace deal between Gaddafi's administration and the rebels said he believed the Libyan leader was far from beaten.
"Gaddafi has not yet used a single surface-to-surface missile, of which he has more than enough. This makes one doubt that the regime is running out of weapons," Russian newspaper Izvestia quoted Mikhail Margelov as saying.
"The Libyan prime minister told me in Tripoli: 'If the rebels seize the city, we will cover it with missiles and blow it up'. I assume that the Gaddafi regime does have this kind of suicide plan," Margelov said.
The Libyan government spokesman denied that Gaddafi had any plans to blow up the city.
NATO urged its members to provide more warplanes to bomb Libyan military targets. The campaign against Libya has strained resources and relations among NATO's 28 members after only four months of military action.
NATO chief Anders Fogh Rasmussen called on alliance members to help more with air-to-ground strikes.
"I encourage all allies that have aircraft at their disposal to take part in that operation as well," Rasmussen said in The Hague after a meeting with Dutch Prime Minister Mark Rutte, who said Dutch planes would not now take part in bombing Libya.
NATO members France and Italy have spoken of the pressing need for a negotiated deal to end the Libyan conflict. France has said a political solution is taking shape and there have been contacts with Gaddafi emissaries.
But it was unclear how it would be possible to bridge the gap between Gaddafi, who refuses to relinquish power, and the rebels who say they will accept nothing less than the departure of the Libyan leader and his family.
Potentially adding to pressure on Italy to seek a peace settlement, Gaddafi's government said it was halting cooperation with Italian oil firm ENI.
The company is the biggest foreign investor in Libya's energy sector and has been in the country since the 1950s. It angered officials in Tripoli by pulling out its staff when the rebellion started and by establishing ties with the rebels.
Western powers, Arab governments and representatives of the Libya rebels are to meet in Istanbul in Friday for a session of the "contact group" which has been coordinating efforts to push Gaddafi from power.
China said it would skip the meeting because the way the group operated needed "further study." Beijing has established contacts with the rebels but it has condemned NATO air strikes and urged a compromise deal between the opposing sides. (Additional reporting by Hamid Ould Ahmed in Algiers, Nick Carey in Misrata, Tarek Amara in Tunis, Lutfi Abu-Aun in Tripoli, Thomas Grove in Moscow, Matt Spetalnick in Washington, Justyna Pawlak and Christoper Le Coq in Brussels and Ben Blanchard and Sabrina Mao in Beijing; Writing by Christian Lowe and Giles Elgood; Editing by Maria Golovnina)
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