Libya accused Nato of a deadly raid on a medical clinic as Britain joined France in saying strongman Moamer Kadhafi may be allowed to remain in his oil-rich country if he gives up power.
The top US military officer admiral Michael Mullen meanwhile spoke of "stalemate" in Nato's Libya campaign but still voiced optimism that the strategy would lead to the departure of Kadhafi.
The reported Nato air strike on the small clinic in Zliten east of Tripoli occurred Monday morning, a local official told an AFP correspondent on a guided media tour of the western town.
Government minders said the air strike had killed at least seven people.
Foreign journalists saw a completely destroyed building with a crescent sign at its entrance and the ground littered with surgical gloves, oxygen bottles, pharmaceuticals and stretchers, but no victims.
In other parts of Zliten, reporters were shown three damaged food storage buildings and another still on fire, which the government minders also blamed on Nato.
Strewn around the site were hundreds of smouldering bags of rice, tomatoes and vegetable oil, as firefighters tried to extinguish the flames. In the same compound, journalists saw a completely destroyed building bearing the name "Agricultural Security."
Zliten lies about 150 kilometres (100 miles) east of Tripoli, Kadhafi's stronghold, and 60 kilometres (35 miles) from rebel-held Misrata.
Libya's insurgents meanwhile accused Kadhafi's forces of shelling Misrata, targeting gas and oil facilities and setting them on fire, in a statement received by AFP.
The rebels appealed for help to put out fires in Misrata, Libya's third city, caused by the shelling.
"The loyalist forces shelled strategic regions inside Misrata, hitting gas and oil warehouses," the statement said, adding that speedy assistance was needed to extinguish the fires "threatening civilians."
In London, meanwhile, British foreign secretary William Hague on Monday demanded that Kadhafi step down but said the Libyan leader may be allowed to remain in the North African country.
Speaking ahead of talks with French counterpart Alain Juppe, Hague said Britain would prefer for Kadhafi to quit Libya and stressed that France and Britain were "absolutely united" in Nato's current mission against Kadhafi.
"What is absolutely clear, as Alain (Juppe) has said, is that whatever happens, Kadhafi must leave power," said Hague.
"Obviously him leaving Libya itself would be the best way of showing the Libyan people that they no longer have to live in fear of Kadhafi."
"But as I have said all along, this is ultimately a question for Libyans to determine," added Hague.
Juppe said the allies were in "perfect co-operation" over the UN-sanctioned mission, which began in March, despite suggestions in France that the mission was dragging on too long. "We think that we must continue to exert strong pressure on the Libyan regime with the same methods," he said.
Juppe last week said that "one of the possibilities being considered" in a possible ceasefire deal is that Kadhafi stay in Libya but on condition he steps aside from political life.
In Washington, US joint chiefs of staff Mullen told a press briefing the Nato campaign had hit an impasse."We are, generally, in a stalemate," Mullen said. He added that Nato has "dramatically attrited (reduced) his forces" and "additional pressure has been brought," even if Kadhafi has not been ousted.
"In the long run, I think it's a strategy that will work... (toward) removal of Kadhafi from power," Mullen said.
Asked if the United States would arm the rebels, Mullen said there has been "no decision to arm the NTC (National Transitional Council) on the part of the United States."
Meanwhile, Ibrahim al-Furis, a Libyan diplomat declared persona non grata in Bulgaria, refused to leave the country on Monday and with other staff organised a minor rebellion at the embassy in Sofia, denouncing Kadhafi's regime.