* Rebels report Gaddafi counter-attack east of capital
* China backs African plan to end crisis
* Rebels claim advance on desert front
By Nick Carey
MISRATA, Libya, July 21 (Reuters) - Libyan rebels said a fierce counter-attack by forces loyal to Muammar Gaddafi had checked their gains on a frontline east of Tripoli on Thursday.
A rebel spokesman in Zlitan, on the coast road 160 km (100 miles) east of the capital, said pro-Gaddafi forces backed by tanks had surrounded rebels who had seized the nearby town of Souk al-Thulatha the previous day.
The soldiers had flattened homes with tank shells, he said in an Internet posting.
“The brigades are still terrorising the families, combing villages and neighbourhoods and spreading panic in the whole region,” he said.
The rebels, who swiftly took much of eastern Libya after an uprising flared in February, have also taken casualties around the oil port of Brega, south of their stronghold Benghazi.
They said they were still trying to take the town fully from Gaddafi’s troops.
State TV showed what it said were fresh pictures from Zlitan and Brega in an apparent bid to show the towns were still firmly in Tripoli’s hands. In Zlitan, dozens of Gaddafi supporters were shown chanting slogans of support.
As the war drags on longer than many expected, with Muammar Gaddafi thwarting efforts to drive him out, separate diplomatic efforts to find a solution have intensified.
China said it would work with the African Union, which has proposed a plan that is seen as less hostile to the Libyan leader than a Western roadmap that insists on his stepping down.
President Hu Jintao told his visiting South African counterpart Jacob Zuma that the Africans had played an important role in pushing a political solution.
“China greatly appreciates this and is willing to continue remaining in close touch and to coordinate closely with South Africa and the African Union on the Libya issue,” Hu said.
France said on Wednesday Gaddafi could stay in Libya if he gave up power, an apparent softening of the West’s stance in a new effort to find a diplomatic end to the five-month-old war.
The United States said Gaddafi must quit, but whether he remained in Libya after that would be up to the Libyan people.
Libya dismissed the idea, saying Gaddafi’s departure after 41 years in power was not up for discussion.
While China did not use its veto in March to block a U.N. Security Council resolution that authorised the NATO bombing campaign against Libya, it then quickly condemned the strikes and has urged a compromise between the government and rebels.
Even with NATO support, the rebels have been making slow progress against Gaddafi.
They lost 18 fighters with up to 150 wounded in the latest clashes around Brega, an eastern Mediterranean coast town they must capture if they are to advance on Tripoli, a doctor said.
“Yesterday, it was a disaster,” said Dr Sarahat Atta-Alah at the hospital in nearby rebel-held Ajdabiya on Wednesday.
Rebel fighters have said they have encircled Brega, which provides access to most of Libya’s eastern oil network and which has changed hands several times, but that they were still coming under fire from pro-Gaddafi forces.
A U.N. diplomat said U.N. envoy Abdul Elah al-Khatib might go to Libya next week, sensing “a greater mood” in Tripoli to engage with his proposals. The diplomat gave no details, but said military and diplomatic pressure on Gaddafi was growing.
Some analysts have said that Gaddafi is running short of fuel and food, which could stoke popular unrest ahead of the Muslim month of Ramadan which begins next week. During Ramadan, people prepare nightly feasts after fasting by day.
The state news agency JANA said officials met on Thursday to ensure food supplies “reach consumers as soon as possible before the start of Ramadan”.
It quoted the head of Tripoli port as saying “cargoes carrying barley, wheat, bananas and other food supplies dock on a daily basis” at the port.
Little attention has been made to Libya’s vast but sparsely populated Sahara interior, but Thursday’s Wall Street Journal quoted rebels as saying they were making progress north towards the regional capital of Sabha in the heart of the country.
However, a hotel worker in the city, almost 800 km (500 miles) from Tripoli, told Reuters by telephone: “Everything is fine in Sabha and the regions south of the city.”
He said colleagues who had been south had seen no rebels there.
Libyans using the state-run cellphone network said they had been receiving text messages this week calling on them to go and fight in the Western Mountains, the front closest to Tripoli.
“The clock of action has struck. The time for cleansing has come. Today the Western Mountains will burn,” ran a message sent on Thursday. (Additional reporting by Souhail Karam in Rabat, Rania El Gamal in Benghazi, Sui-Lee Wee and Ben Blanchard in Beijing, Brian Love and Emmanuel Jarry in Paris, Patrick Worsnip in New York; writing by Richard Meares, editing by Alistair Lyon)