Analysts saw the idea as a first step, but not one that would on its own break the deadlock and end months of conflict.
French foreign minister Alain Juppe, whose country was the chief instigator of the intervention against Gaddafi, spelled out in unequivocal terms that foreign powers were now ready to make such a concession and move on to call a ceasefire.
Juppe, interviewed on French LCI TV, said a UN envoy had been asked to coordinate contacts with the Gaddafi camp, after weeks in which rumours have swirled about the tenor of meetings with Gaddafi emissaries in Paris and elsewhere.
"One of the scenarios effectively envisaged is that he stays in Libya on one condition which I repeat - that he very clearly steps aside from Libyan political life," Juppe said.
"A ceasefire depends on Gaddafi committing clearly and formally to surrender his military and civilian roles."
The readiness to consider Gaddafi remaining in Libya as long as he stood aside was clearly motivated by an awareness that Gaddafi was determined to dig in for the long haul and that it would be hard, if not impossible, to flush him out of Tripoli.
"This is above all about the realisation that things on the ground are in stalemate, that the 'hard-power' strategy has its limits," said Karim Bitar, Middle East expert at the Paris-based think tank IRIS.
He said that Gaddafi would at least demand immunity from prosecution in the International Criminal Court (ICC) and that his son Saif al Islam be promised a role in the future Libya - something the rebels would never swallow.
Saad Djebbar, a London-based former lawyer for the Libyan government, also read Juppe's comments as a starting point.
"Gaddafi does not want to be seen to be defeated. That's very important for him. This is the only way," he said.
"The fundamental twin principles for a settlement are a face-saving formula for Gaddafi to leave power but stay in Libya, at least for a time ... and then in return for him to get immunity from prosecution by way of a Security Council resolution, to take care of the ICC charges."
Juppe was the first senior Western official to state the Gaddafi-can-stay option in such a clear-cut manner. But scepticism about the suggestion was not limited to analysts.
Bernard-Henri Levy, a French intellectual who has carved himself a role as non-governmental intermediary between President Nicolas Sarkozy and anti-Gaddafi rebels said:
"It's inconceivable. The very idea that Gaddafi would remain in his country or even a neighbouring country is unthinkable and they (the rebels) will never accept it."
Levy was speaking after attending a meeting in Paris between Sarkozy and two members of Libya's rebel Transitional National Council (TNC), General Ramadan Zarmouh and Colonel Ahmed Hachem.
The rebel commanders urged closer cooperation with Nato and, according to Levy, lobbied for arms supplies from Arab nations.
France was the first country to recognise the TNC and the first to launch air strikes against Gaddafi's military machine when now Nato-led operations began in March.
"We want to maintain close links with them and see how we can help them," said Juppe.
Regarding possible negotiations with Gaddafi, Juppe said no talks were under way in Paris with any of the Libyan leader's representatives and that a UN envoy, Abdul Elah al Khatib, had been charged with coordinating any such contacts.
"The issue now is not whether Gaddafi goes, but when and how," Juppe said. "There's the military side and the political side, which is progressing, with contacts which have not yet produced results but are coordinated by Mr al Khatib."
The rebels have this week reported military progress against Gaddafi's forces, but despite their advances in the eastern oil hub region of Brega, the Libyan leader has vowed to fight on.
US officials and representatives of Gaddafi held a rare meeting on Saturday after Washington formally recognised the Benghazi-based NTC as Libya's legitimate interim government.
Russian foreign minister Sergei Lavrov met his Libyan counterpart Abdelati Obeidi in Moscow on Wednesday as part of Russia's efforts to help end the war in Libya.
President Dmitry Medvedev, whose Africa envoy has met rebels and government officials in Libya in recent weeks, said on Tuesday there was still a chance for compromise.
The Russian foreign ministry said on its Twitter feed on Tuesday that Obeidi's visit was Libya's initiative.
Konstantin Kosachyov, a ruling United Russia party member and chairman of the international affairs committee in the lower parliament house, said that was cause for cautious optimism.
"It means that people who are still in power in Tripoli are ready to talk and not just suppress the resistance of the population with tanks or other heavy weapons," he said.
Kosachyov, who often serves as an informal spokesman on Kremlin foreign policy, said Gaddafi and his government should be offered guarantees in exchange for leaving power.
"Probably what can be discussed is some kind of guarantees of his personal security, the security of members of his family," Kosachyov told reporters, reiterating that Russia would not take Gaddafi in.
Kosachyov cast Russia's diplomacy as the "antithesis" of the approach of Western nations involved in the air campaign and which recognise the NTC as Libya's legitimate government.
Such actions undermine diplomacy and "lead the negotiations track into a dead end", he said.
"With the full understanding that Gaddafi's regime really has no future and really cannot remain in power, the difference is that we are ready to continue talking to this regime in order to induce it into political contacts with the opposition and in the final result induce it to leave power, to hand it over to the Libyan people in a peaceful, democratic manner," he said.