BENGHAZI/NALUT, Libya (Reuters) - Libya's rebels said their military commander was shot dead in an incident that remained shrouded in mystery, pointing either to divisions within the movement trying to oust Muammar Gaddafi or to an assassination by Gaddafi loyalists.
The killing of Abdel Fattah Younes, who for years was in Gaddafi's inner circle before defecting to become the military chief in the rebel Transitional National Council (TNC), set back a movement that was at last beginning to acquire cohesion as international pressure on the Gaddafi regime intensifies.
"It seems this was an assassination operation organised by Gaddafi's men. Gaddafi's security apparatus has fulfilled their aim and objective of getting rid of Younes," London-based Libyan journalist and activist Shamis Ashour told Reuters.
"By doing that they think they will create divisions among the rebels. There certainly was treason, a sleeping cell among the rebels. Younes was on the front line and was lured to come back to Benghazi and was killed before he reached Benghazi. This is a big setback and a big loss to the rebels."
The killing, announced late on Thursday, coincided with the start of a rebel offensive in the west and further international recognition for their cause, which they hope to translate into access to billions of dollars in frozen funds.
The rebels said Younes was shot dead by assailants after being summoned back from the battlefield.
Witnesses said the killing was greeted with jubilation by Gaddafi's supporters in the Libyan capital Tripoli.
After a day of rumours, rebel political leader Mustafa Abdel Jalil said Younes and two bodyguards had been killed before he could make a requested appearance before a rebel judicial committee investigating military issues.
It was not clear where the attack took place. Compounding the confusion, Jalil said the bodies had yet to be found.
Younes was not trusted by all of the rebel leadership due to his previous role in cracking down on anti-Gaddafi dissidents.
But his death is likely to be a severe blow to a movement that has won the backing of some 30 nations but is labouring to make progress on the battlefield.
"A lot of the members of the TNC were Gaddafi loyalists for a very long time. They were in his inner circle and joined the TNC at a later stage," said Geoff Porter from North Africa Risk Consulting.
The rebels claimed to have seized several towns in the Western Mountains on Thursday but have yet to make a serious breakthrough. With prospects of a swift negotiated settlement fading, both sides seem prepared for the five-month civil war to grind on into the Muslim holy month of Ramadan in August.
A rebel official said no deal was worth talking about unless it meant Gaddafi and his powerful sons left Libya, while the veteran leader vowed to fight on "until victory, until martyrdom".
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Soon after Jalil's announcement, gunmen entered the grounds of the hotel in the rebels' main city of Benghazi where he was speaking and fired shots in the air, a Reuters reporter said. No one was hurt.
At least four explosions rocked the centre of Tripoli on Thursday evening as airplanes were heard overhead. The city has come under frequent NATO bombing since Western nations intervened on the side of the rebels in March under a U.N. mandate to prevent Gaddafi's forces from killing civilians.
The killing of Younes, who was involved in the 1969 coup that brought Gaddafi to power and then became his interior minister, came after the rebels attacked Ghezaia, a town near the Tunisian border held by Gaddafi throughout the war.
By late Thursday, the rebels said they had taken control of the town, from which Gaddafi forces had controlled an area of the plains below the mountains.
"Gaddafi's forces left the areas when the attack started," said rebel fighter Ali Shalback. "They fled towards the Tunisian border and other areas."
Reuters could not go to Ghezaia to confirm the report, as rebels said the area around the town could be mined. But looking through binoculars from a rebel-held ridge near Nalut, reporters could see no sign of Gaddafi's forces in Ghezaia.
Juma Ibrahim, a rebel commander in the Western Mountains, told Reuters by phone from the town of Zintan that Takut and Um al Far had also been seized in the day's offensive.
Rebels have taken swathes of Libya since rising up to end Gaddafi's 41-year rule in the oil-producing North African state.
They hold northeast Libya including their stronghold Benghazi; the western city of Misrata; and much of the Western Mountains, their closest territory to the capital.
Yet they remain poorly armed and often disorganised.
The fighting has settled into a stalemate in a conflict that Gaddafi has weathered for five months, despite rebel gains, mainly in the east, and hundreds of NATO air raids on his forces and military infrastructure.
A recent flurry of diplomatic activity has yielded little, with the rebels insisting Gaddafi step down as a first step and his government saying his role is non-negotiable.
Western suggestions that Gaddafi might be able to stay in Libya after ceding power appeared to fall on deaf ears.
U.N. envoy Abdel Elah al-Khatib visited both sides this week with plans for a ceasefire and a power-sharing government that excludes Gaddafi, but won no visible result.
The rebels said any deal that did not envisage Gaddafi and his sons leaving the country was "not worth talking about" while the Libyan leader appeared defiant on Wednesday, urging rebels to lay down their arms or suffer an ugly death.
The rebels received a further boost on Thursday when Portugal followed Britain in recognising them.
London has also unblocked 91 million pounds ($149 million) in frozen assets, joining the United States and about 30 other nations who have now recognised the opposition, potentially freeing up billions of dollars in frozen funds.
Austria said it wanted to unfreeze up to 1.2 billion euros ($1.7 billion) of Libyan money and transfer it to the rebels, but needed legal papers to show that a financial body set up by the NTC amounted to a valid central bank "identical to the one in Tripoli" to which the money had belonged.
(Additional reporting by Samia Nakhoul in London, Hamid Oul Ahmed in Algiers, Missy Ryan and Lutfi Abu Aun in Tripoli, Andrei Khalip in Lisbon, Olesya Dmitracova and Ikuko Kurahone in London, Sylvia Westall in Vienna, Humeyra Pamuk in Dubai and Patrick Worsnip in New York; Joseph Nasr in Berlin, Ahmed Tolba in Cairo; writing by David Lewis and Richard Meares; editing by Mark Heinrich)
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