Despite rebels celebrating that Muammar Gaddafi's rule appeared to be crumbling, US officials have warned he is far from beaten - fearing entanglement in another painful war.

The latest fighting in Libya has centered on Brega -- a strategic oil town, on the coastal road that leads to Tripoli.

Territory has gone back and forth between rebels and pro-Gaddafi forces, as fighting rages on.

Rebels moved rockets and other equipment forward towards Brega on Friday, seeking to retake the oil town and regain momentum against Gaddafi's better equipped forces.

Back in the capital Tripoli, Gaddafi struck a defiant tone on Thursday.

In a statement published by Libya's official news agency, Gaddafi warned military action launched by the international coalition could spiral out of control. He also accused Western powers of harming relations between the Libyan people, saying the solution for the coalition is to immediately stop its operation.

Hundreds of supporters echoed his defiance.

They waved green flags and chanted as they rallied in the Libyan leader's residential compound, which was hit by airstrikes on March 20th...even as the US said that the Libyan leader's inner circle was clearly crumbling.

Rada Abdul Jadil, Gaddafi Supporter, said, "You keep talking about human rights, but you keep bombing our Libyan citizens....we are here not afraid."

It's the same argument the Libyan government has been using since western-led forces began enforcing a no-fly zone over the country.

Gadhafi has converted the compound into an anti-Western gathering point.

Dozens of Libyans, described as "voluntary human shields" by the government, amass at the site each day to show their support for the leader.