* Gaddafi troops push eastwards, take junction at Ajdabiyah
* Night time anti-Gaddafi protests in city of Benghazi
* Benghazi residents say leaflets in streets offer pardon
* U.S. mulls ways to free up Gaddafi assets to help rebels
* U.N. security council draft resolution circulated
(Adds deputy foreign minister comment on Western oil firms)
By Mohammed Abbas
AJDABIYAH, Libya, March 15 (Reuters) - Muammar Gaddafi’s forces pushed relentlessly eastwards towards Libyan rebels’ stronghold of Benghazi on Tuesday, while world powers wrangled over a draft resolution to impose a no-fly zone.
Gaddafi appeared at an evening rally in a huge tent in Tripoli, condemning the rebels as rats, dogs, hypocrites and traitors. As he spoke, thousands gathered in a Benghazi square denouncing him as a tyrant and throwing shoes and other objects at his image projected upside down on a wall.
The rebels’ eastern capital looked highly vulnerable after government troops took control of the junction at Ajdabiyah, opening the way to Benghazi.
“The town of Ajdabiyah has been cleansed of mercenaries and terrorists linked to the al Qaeda organisation,” state TV said, referring to the rebels fighting to end Gaddafi’s 41 years of absolute power.
Foreign powers condemn his crackdown, but show little appetite for action to support an uprising that was inspired by pro-democracy rebellions that toppled the Egyptian and Tunisian presidents. Many in the Arab world may fear a Gaddafi victory and a crackdown on protests in Bahrain could turn the tide in the region.
Looking ahead with confidence to future business deals in a Gaddafi-led Libya, deputy foreign minister Khaled Kaim said Libya will honour existing contracts with Western oil companies and that the crisis may influence future cooperation with them.
Kaim also told Reuters that the government hoped to regain control over all rebel-held territory within days.
Events on the ground are quickly overtaking diplomacy.
A U.N. Security Council draft resolution on a no-fly zone, seen by Reuters, authorises “all necessary measures to enforce” a ban on all flights, to protect civilians.
The 15-nation body is not expected to vote on the draft on Tuesday, as most member states will need time to consult with their capitals about the no-fly zone, diplomats told Reuters.
Veto powers Russia, China and the United States, along with Portugal, Germany and South Africa are among the members that have doubts about the idea of a no-fly zone for Libya.
Earlier on Tuesday, jets fired rockets at a rebel checkpoint at the western entrance to Ajdabiyah, then unleashed a rolling artillery barrage on the town and a nearby arms dump, following the same pattern of attack that has pushed back rebels more than 100 miles (160 km) in a week-long counter-offensive.
As well as the coastal road to Benghazi, there is also a 400 km (250 mile) desert road straight to Tobruk, near the Egyptian border, that would cut off Benghazi. But it was not clear whether Gaddafi’s forces were strong enough to open a second front and if they could operate with such long supply lines.
Libyan League for Human Rights chief Soliman Bouchuiguir, said in Geneva if Gaddafi attacked Benghazi, a city with 670,000 people and the rebels’ provisional National Council, there would be “a real bloodbath, a massacre like we saw in Rwanda”.
The mood in the city was defiant but shaky.
At Gaddafi’s evening rally, supporters chanted praise of the leader, who spoke for about half an hour in what appeared to be a preparation for a final reckoning with the rebellion. He said the rebels had brought shame upon themselves.
Mohamed Yasiri, unemployed and 55, said in Benghazi:
“About the news from Ajdabiyah, everyone admits now we don’t have the weapons to take on Gaddafi.
“We are all afraid, to be honest.”
Haitham Imami, 38, unemployed, listening to Yasiri, objected: “We are ready to fight him zenga, zenga (street by street). We have the weapons, even if we are left with daggers.”
Gaddafi’s planes, tanks and artillery have had few problems picking off lightly armed insurgents in the open desert, but have faced tougher resistance in towns that offer more cover.
The small oil town of Brega, with a population of just 4,300, 75 km (50 miles) southwest of Ajdabiyah, changed hands several times in three days of heavy fighting, but also succumbed to superior government firepower on Tuesday.
More on Middle East unrest: [nTOPMEAST] [nLDE71O2CH]
Western forces in region link.reuters.com/jen38r
Latest graphic: r.reuters.com/nym77r
Interactive factbox link.reuters.com/puk87r
Graphic on air bases link.reuters.com/zyk48r
Graphic on missile defences link.reuters.com/wem48r
NATO has set three conditions for it to enforce a no-fly zone over Libya; regional support, proof its help is needed and a Security Council resolution.
An Arab League call for a no-fly zone satisfies the first condition, but with access to most of Libya barred by Gaddafi’s security forces, hard evidence that NATO intervention is needed to avert atrocities or a humanitarian disaster is scarce.
Growing numbers of Libyan are now crossing into Egypt fleeing Gaddafi’s advance, the U.N. refugee agency said.
“Until this week, it was almost entirely migrant workers crossing into Egypt. But on Monday nearly half of the around 2,250 people were Libyans, including many families with children,” said UNHCR spokeswoman Sybella Wilkes. “On the Egyptian side of Libya, we haven’t seen that before.”
Medecins Sans Frontieres said it had withdrawn its staff from Benghazi and they were heading for Alexandria in Egypt.
In Misrata, the last major city in western Libya still in rebel hands, residents said water had been cut off to the city of 300,000 people, 200 km (130 miles) east of Tripoli.
Pro-Gaddafi forces took control of the small town of Zuwarah, west of Tripoli, late on Monday after sending in tanks.
A resident in Zuwarah said that on Tuesday security forces were trying to round up anyone suspected of links to the rebels. “They have lists of names and are looking for the rebels.”
Foreign ministers from the Group of Eight countries meeting in Paris could not agree to press the U.N. Security Council to back a no-fly zone to protect Libyan cities from aerial bombing.
Instead, the G8 said Libyans have a right to democracy and warned Gaddafi he faced “dire consequences” if he ignored his people’s rights. The G8 urged the Security Council to increase pressure on Gaddafi, including further economic measures.
In Washington, the White House said it was exploring ways to free up some of the billions of dollars of assets seized from Gaddafi’s government to provide help for the rebels.
Additional reporting by Maria Golovnina and Michael Georgy in Tripoli, Tom Pfeiffer in Benghazi, Mariam Karouny in Djerba, Tunisia, Tarek Amara in Tunis, Louis Charbonneau and Patrick Worsnip at the United Nations, James Regan, Tim Hepher, Arshad Mohammed and John Irish in Paris; Writing by Louise Ireland; editing by Ralph Boulton