| NORTH OF BANI WALID, Libya
NORTH OF BANI WALID, Libya Libyan forces have massed outside a pro-Gaddafi desert town that has refused to surrender, building a field hospital in preparation for a possible last stand.
On-off talks involving tribal elders from Bani Walid, south of Tripoli, and a fog of contradictory messages in recent days, reflect the complexities of dismantling the remnants of Gaddafi's 42-year rule and building a new political system.
At a military checkpoint some 60 km (40 miles) north of the town on the road to the capital, Abdallah Kanshil, who is running talks for the interim government, told journalists a peaceful handover was coming soon. Nevertheless, a dozen vehicles carrying NTC fighters arrived at the checkpoint.
"The surrender of the city is imminent," he said on Monday. "It is a matter of avoiding civilian casualties. Some snipers have surrendered their weapons ... Our forces are ready."
Similar statements have been made for days, however. With communications cut, there was no word from inside Bani Walid.
But 20 km closer to the town, NTC forces built a field hospital and installed 10 volunteer doctors to prepare for the possibility that Gaddafi loyalists would not give up.
"The presence of pro-Gaddafi forces in Bani Walid is the main problem. This is their last fight," said Mohamed Bin Dalla, one of the doctors. "If Bani Walid is resolved peacefully then other remaining conflicts will be also be resolved peacefully."
Forces loyal to the National Transitional Council (NTC) are also trying to squeeze Gaddafi loyalists out of his home town of Sirte, on the coast, and a swathe of territory in the desert.
GADDAFI IN "GOOD SPIRITS"
Moussa Ibrahim -- believed by the NTC to be in Bani Walid -- said the deposed leader was in good health and good spirits somewhere in Libya in remarks broadcast on Monday.
"Muammar Gaddafi is in excellent health and in very, very high spirits," Ibrahim said.
"He is in a place that will not be reached by those fractious groups, and he is in Libya," Ibrahim told the Syrian-owned Arrai TV in response to a question on the whereabouts of Gaddafi.
Last week, a senior NTC military commander said he believed Gaddafi was in Bani Walid, 150 km south of Tripoli, along with his son Saif al-Islam, his former heir apparent.
"We will prevail in this struggle until victory," Ibrahim said. "We are still strong, and we can turn the tables over against those traitors and NATO allies."
Some NTC officials said they had information that Saif al-Islam had fled Bani Walid on Saturday for the southern deserts.
Al Arabiya television reported that a senior former official, Mansour Dhao, had turned up in Niger to the south, beyond Libya's deserts. Niger officials described him as the head of Gaddafi's security brigades.
Bani Walid is the main stronghold of the Warfalla tribe, a diffuse group of up to a million people, and its fate may be decided in talks between tribal leaders in the town who remain loyal to Gaddafi and others in cities such as Misrata and Tripoli who have joined the revolt.
"They are now talking cousin to cousin," said one Warfalla man who spoke to Reuters near Bani Walid. "But as you can see, it is still not going well."
Even as tribal elders in flowing white robes squatted in the shade on Sunday for talks with NTC fighters in T-shirts and jeans, some homes in the nearby town of Tarhouna were still flying Gaddafi's all-green Libyan flag, while others had raised the red, green and black flag revived by the revolution.
At the same time as it is grappling with the problem of rooting out the final remnants of a fallen dictatorship, the NTC is facing its first teething problems as a government.
In Tripoli, two weeks after the Western-backed rebels overran the city, there are still water shortages, but other supplies are improving.
Ahmad Darat, the interim interior minister, said about half the police force had returned to work in the capital.
"As the days go by, they are coming back to work," he said.
The NTC announced a plan on Sunday to offer work in the police and elsewhere to disbanded rebel fighters -- a move of a kind recommended by the United Nations, which is concerned about the large numbers of disorganized armed men in Libya.
The NTC is keen not to demonize those who served the old regime, to avoid what it sees as an error that contributed to Iraq's descent into bloody anarchy after Saddam Hussein's fall.
"The vast majority of the policemen are serving the people and as the days go by we expect them to come back," Darat said.
Asked about complaints about the conditions of people being held by the new authorities for questioning, Darat acknowledged there were problems in prisons but said they would improve as resources became available.
Ian Martin, a United Nations adviser in Tripoli, said after a meeting at the Interior Ministry that the NTC should ensure that rights were respected.
"One of the most important challenges is the restoration of public security in the hands of a system which will respect human rights rather than the previous system which violated human rights," he said.
China, which has been concerned it might lose out commercially to Western powers in the new Libya, said it had not been aware of offers of arms to Gaddafi apparently made by Chinese companies in recent months.
Documents found in Tripoli and published by a Canadian newspaper indicated officials from Gaddafi's administration had sought to circumvent a U.N. arms embargo and believed they had assurances from Chinese firms that they could supply weapons.
(Reporting by Mohammed Abbas, Christian Lowe and Alex Dziadosz in Tripoli, Sherine El Madany in Ras Lanuff, Emma Farge in Benghazi, Marie-Louise Gumuchian, Barry Malone and Alastair Macdonald in Tunis, Sami Aboudi, Amena Bakr and Omar Fahmy in Cairo; Writing by Marie-Louise Gumuchian and Alastair Macdonald and Barry Malone; Editing by Michael Roddy)