Libyan rebels have claimed back the town of Brega after a day of chaotic clashes with Muammar Gaddafi’s forces in the key oil and port town that claimed the lives of at least 10 people. The counter-attack came as fighting in the strife-torn nation escalated into a potential civil war, with bloody clashes between government and rebel forces marking a decisive phase in the battle for control of rebel-held eastern Libya.

But as the fighting raged in the towns and cities outside of Tripoli, Gaddafi insisted during a televised public rally in the capital the people were on his side and any attacks on him were on the dignity of Libya.

“Muammar Gaddafi is not a president to resign, he does not even have a parliament to dissolve,” Gaddafi said during his third public appearance since the uprising. Gaddafi has also offered an amnesty for rebels who hand back weapons, promising they would be “forgiven and not pursued”.

But moments after rebel forces claimed victory in Brega, fighter jets launched two missiles at them — marking the clear intent of Gaddafi to take his crackdown on opposition to the skies. Debate still rages over the imposition of a no-fly zone, as Libyan military jets reportedly bombed a weapons depot somewhere near the opposition-held town of Ajdabiya.

The Arab League has said it may impose a no-fly zone on Libya in coordination with the African Union to stop Gaddafi firing at his people from the air.

Britain and the United States are also considering backing the no-fly option, while Australia has already thrown its support behind the measure. Winning a UN Security Council mandate may prove difficult however, with the foreign minister of veto power-wielding Russia dismissing a no-fly zone as “superfluous”.

There is also the very real prospect of direct intervention from NATO or UN backed forces in a bid to stop the bloodshed. Some rebels in Libya have been calling for air strikes on Gaddafi and his men.

British, US and French warships have also entered the Mediterranean Sea, with the possibility forces may help in either humanitarian or military efforts. The Arab League has said at this stage they will not support outside forces on the ground in Libya.

Faced with the threat of armed intervention by the West, Gaddafi remained defiant: “We will enter a bloody war and thousands and thousands of Libyans will die if the United States enters or NATO enters.”

Meanwhile, the refugee crisis on the Libyan-Tunisian border continues to grow. UN officials estimate the number of people fleeing Libya for Tunisia has now topped 180,000.

Appealing for international help on Wednesday, UN secretary general Ban Ki-moon said: “We need concrete action on the ground to provide humanitarian and medical assistance. Time is of the essence. Thousands of lives are at risk.”

Australia has pledged $5 million in emergency assistance to help those who fleeing Libya, while British, French and Tunisian planes have begun airlifting refugees to safety as the international community moved to prevent a humanitarian disaster.

And the UN Human Rights Council has unanimously voted to suspend Libya’s membership for committing “gross and systematic violations of human rights”.