The Libyan army said it would halt operations from Sunday to allow rebels to lay down their arms and benefit from an amnesty, as the newly emboldened insurgents claimed they had shot down warplanes trying to bomb their bastion of Benghazi.
At the United Nations, pressure was growing for the Security Council to adopt measures to halt the advance of forces loyal to strongman Muammar Gaddafi that could even go beyond a long-demanded no-fly zone to include air strikes.
Diplomats said a draft resolution being negotiated by major powers calls for all necessary measures short of an occupation to protect civilians in Libya.
"The provisional general committee (ministry) of defence has decided to halt military operations against the armed terrorist bands from midnight on Sunday (2200 GMT) ... to give (them) a chance to lay down their arms and benefit from a general amnesty," state news agency Jana said.
It was not immediately clear why the regime was softening its stance, when Gaddafi's son said earlier this week that the rebels would be vanquished by Friday and the leader himself had promised the final assault on Benghazi.
The announcement came as state television said Gaddafi's troops were on the outskirts of Benghazi, the major Mediterranean city in the east and seat of the month-old rebellion against Gaddafi's iron-fisted four-decade rule.
"The town of Zuwaytinah is under control (of loyalists) and armed forces are on the outskirts of Benghazi," Allibya television said. Zuwaytinah is about 150 kilometres (93 miles) south of Benghazi.
A rebel spokesman said the situation was "calm" in the city of more than a million people.
"The Gaddafi forces tried to carry out an air raid on the city but our anti-aircraft defences repulsed the offensive and two planes were shot down," a the spokesman told AFP by telephone.
However, a doctor in Benghazi told AFP by phone that only one plane was shot down, adding that "morale is high."
Libyan television also said loyalists had overrun the rebel bastion of Misrata, the country's third city 200 kilometres (125 miles) east of Tripoli, a day after Gaddafi promised a "decisive battle" there.
"The armed forces are in control of the city of Misrata. It is now being purged of the terrorist gangs," Allibya television said.
That claim was denied by a rebel spokesman in Misrata, who said insurgents remained in command.
"We still control the city, even its outskirts. Gaddafi is mobilising his forces a few kilometres away," the spokesman said by phone.
The spokesman also reported that 18 people, including three civilians, were "martyred" in fierce fighting on Wednesday. "We inflicted huge losses to the Gaddafi forces, including 60 people killed," he added.
On Tuesday, state television said the army would soon move against Benghazi, and on Wednesday, Gaddafi's son Seif al-Islam predicted that everything would be over on Friday.
In an interview with Russia Today television broadcast late Wednesday, Gaddafi said Benghazi will fall "without our use of military force" as local residents will themselves chase out the "bandits."
With fears growing of a massacre of the lightly armed rebels being pushed back by Gaddafi's superior air power and artillery, the world remained divided Thursday over what course to take.
Major powers were meeting in New York, and the UN Security Council is expected to gather at around at 11 am (1500 GMT), though no vote is expected for several hours after that.
A statement by French Foreign Minister Alain Juppe's office said France, Britain and Lebanon have tabled a draft resolution "broadening the scope of sanctions and opening the path for using the necessary means to stop Gaddafi's offensive."
It did not detail military means and did not mention a no-fly zone. Juppe himself has said that the idea of a no-fly zone has now been overtaken by events.
The United States has apparently toughened its position, joining in the pressure for a Security Council vote Thursday on a no-fly zone to halt Gaddafi's attacks.
US ambassador to the United Nations Susan Rice said action might have to "go beyond a no-fly zone at this point, as the situation on the ground has evolved, and as a no-fly zone has inherent limitations in terms of protection of civilians at immediate risk."
French President Nicolas Sarkozy, in a letter to the leaders of the other countries on the 15-nation council, said on Wednesday that: "Together, we can save the martyred people of Libya. It is now a matter of days, if not hours."
And NATO chief Anders Fogh Rasmussen urged the Security Council to agree a resolution on Thursday, warning that "time is running out."
"If Gaddafi prevails it will send a clear signal that violence pays. That would be unacceptable from a humanitarian and democratic perspective," Rasmussen said on his Facebook page.
"But time is running out. The sooner the United Nations can reach an agreement the better," he said. "NATO stands ready to protect the civilian population if there is a demonstrable need, clear legal basis and strong regional support."
The NATO chief also said that attacks on civilians in Libya might be crimes against humanity.
"It is absolutely outrageous to see the Libyan regime systematically attack its own civilian population. These acts may amount to crimes against humanity," he said in Poland.
Not immediately clear was the stance of Germany, which currently sits on the Security Council and is a key NATO member.
On Wednesday, Foreign Minister Guido Westerwelle said "we have no wish to and we cannot take sides in a north African civil war."
"We do not wish to start down a path which would eventually lead to German soldiers taking part in a war in Libya."
Russian Foreign Minister Sergei Lavrov has requested more information from Arab states on how a no-fly zone would be policed.
China, which like Russia wields a veto on the Security Council, has also expressed reservations about any intervention.
In New York, deputy Libyan UN ambassador Ibrahim Dabbashi warned Wednesday that "in the coming hours we will see a real genocide if the international community does not act quickly."
Dabbashi, who defected early on from the Gaddafi regime, said "about five" Arab states were ready to help police the no-fly zone if it were adopted.
Elsewhere in the Middle East, Bahrain rounded up dissidents Thursday as it came under mounting diplomatic pressure to end a bloody crackdown on Shiite-led protesters which has alarmed its ally the United States and infuriated Iran.
Five hardline Shiite activists and one Sunni were arrested during the night, a parliamentarian from the Shiite opposition alliance said, after a day of violence that left five dead in the Sunni-ruled kingdom.