A government spokesman said Libya was ready for a "political solution" with world powers. He said the country was ready to discuss political reform, but Gaddafi had to stay.
Libyan TV showed Gaddafi saluting supporters outside his fortified compound in Tripoli late on Monday. But some residents of the capital, angered by fuel shortages and long queues for basic goods, began openly predicting his imminent downfall.
With Libya in chaos, an official in neighbouring Algeria told Reuters that al Qaeda was exploiting the conflict to acquire weapons, including surface-to-air missiles.
The U.S. State Department said it had raised concerns with the Libyan rebels about the Islamist group obtaining arms in the east of the country, where they are battling Gaddafi's forces.
Evacuees from Misrata, the rebels' last major stronghold in western Libya, described the city as "hell." They said Gaddafi's troops were using tanks and snipers against residents, littering the streets with corpses and filling hospitals with the wounded.
"You have to visit Misrata to see the massacre by Gaddafi," said Omar Boubaker, a 40-year-old engineer with a bullet wound to the leg, brought to the Tunisian port of Sfax by a French aid group. "Corpses are in the street. Hospitals are overflowing."
Misrata rose up with other towns against Gaddafi last month but is the only major one in western Libyan left in rebel hands.
"I could live or die, but I am thinking of my family and friends who are stranded in the hell of Misrata," said tearful evacuee Abdullah Lacheeb, who had serious injuries to his pelvis and stomach and a bullet wound in his leg.
"Imagine, they use tanks against civilians. He (Gaddafi) is prepared to kill everyone there ... I am thinking of my family."
State TV showed live footage of Gaddafi briefly waving to supporters through the roof of a Jeep outside his compound while bodyguards tried to prevent them from mobbing him.
But in the maze-like lanes of Tripoli's medieval market, some openly forecast his fall as rebels based in eastern Libya battle his forces.
"People from the east will come here. Maybe in two weeks," said one entrepreneur who asked that his name not be used for fear of reprisals. "But now, people are afraid."
Stalemate on the frontline of fighting in eastern Libya, defections from Gaddafi's circle and the plight of civilians caught in fighting, or facing food and fuel shortages, have prompted a flurry of diplomacy to try to end the civil war.
Turkey said it was seeking to broker a ceasefire as an envoy from Gaddafi's government arrived in Ankara from Athens.
"Turkey will continue to do its best to end the sufferings and to contribute to the process of making a road map that includes the political demands of Libyan people," Foreign Minister Ahmet Davutoglu said after the arrival of Libyan Deputy Foreign Minister Abdelati Obeidi from earlier talks in Greece.
Turkey also expected officials of the rebel National Council to visit Ankara soon, Davutoglu told a news conference. A Turkish Foreign Ministry official said both sides had "conveyed that they have some opinions about a possible ceasefire."
Obeidi later also held talks in Malta.
ITALY SAYS GADDAFI MUST GO
Italian Foreign Minister Franco Frattini, who had spoken to Greek officials after Obeidi's talks in Athens, dismissed the Libyan message. "A solution for the future of Libya has a pre-condition: that Gaddafi's regime leaves and is out and that Gaddafi himself and his family leave the country," he said.
In Washington, the U.S. Treasury said it had lifted sanctions against former Libyan foreign minister Moussa Koussa in the hopes that other senior officials would defect.
Koussa fled to Britain last week and Scottish police want to question him over the 1988 Lockerbie airliner bombing, for which Libya accepted responsibility and paid compensation to relatives of the 270 dead.
U.N.-mandated air strikes to protect civilians have so far failed to halt attacks in Misrata by the Libyan army.
At least five people died when Gaddafi forces shelled a residential area of Misrata late on Monday, a doctor said, warning the death toll was likely to keep rising.
"The reception in the hospital is full. Five people were confirmed killed in the last two hours and five more are in critical condition," the doctor, who gave his name as Ramadan, told Reuters by phone from the city.
Libyan officials deny attacking civilians in Misrata, saying they are fighting armed gangs linked to al Qaeda. Accounts from Misrata cannot be independently verified as Libyan authorities are not allowing journalists to report freely from there.
A Turkish ship that sailed into Misrata to rescue 250 wounded was protected by Turkish warplanes and warships and had to leave in a hurry after thousands pressed forward on the dock, pleading to be evacuated. Another ship operated by Medecins Sans Frontieres docked in Sfax with 71 wounded from Misrata.
AL QAEDA CONVOY
In Algiers, a senior security official said that Al Qaeda in the Islamic Maghreb (AQIM), the Islamist group's regional wing, was getting hold of weapons in Libya.
The Algerian official, speaking on condition of anonymity, said a convoy of eight Toyota pick-up trucks had left eastern Libya and headed via Chad and Niger to northern Mali, where in the past few days it had delivered a cargo of weapons.
"We know that this is not the first convoy and that it is still ongoing," the official said. "Several military barracks have been pillaged in this region (eastern Libya) with their arsenals and weapons stores, and the elements of AQIM who were present could not have failed to profit from this opportunity."
In Washington, State Department spokesman Mark Toner said the United States had raised concerns with the Libyan rebels.
"We are aware of these reports too and it has been one of the topics of our conversation with ... the opposition forces," Toner told reporters. "We have made very clear our concerns and they have ... pledged that they will look into it."
Gaddafi says the uprising is fueled by Islamist radicals and Western nations who want to control Libya's oil. The rebels, whose stronghold is in the eastern city of Benghazi, want nothing less than the removal of Gaddafi and his circle.
The U.N.-mandated military intervention, in which warplanes have attacked Gaddafi's armor, radar and air defences, began on March 19 and was intended to protect civilians caught up in fighting between pro-Gaddafi forces and the rebels.
After chasing each other up and down the coast road linking the oil ports of eastern Libya with Gaddafi's tribal heartland further west, the two sides are stuck around Brega, a sparsely populated settlement spread over more than 25 km (15 miles).