Negotiations for the surrender of Moamer Kadhafi's forces in the Libyan town of Bani Walid have failed and will not resume, an official said, opening the way for a military attack.
"I am leaving the military commander to resolve the problem," said Abdullah Kenshil, the chief negotiator for the anti-Kadhafi National Transitional Council (NTC).
The town southeast of Tripoli is one of the last strongholds of pro-Kadhafi fighters where at least one of the ousted despot's sons is reputed to be hiding.
Kenshil said the fighters had wanted to come out with their weapons on Sunday but were refused.
"They demanded that the revolutionaries enter Bani Walid without their weapons," he added, charging that it was a pretext for an ambush.
Kenshil also said Kadhafi himself, his sons and many of his family had been in Bani Walid, without specifying when. Some had left but two of Kadhafi's sons, Saadi and Mutassim, are suspected of still being there.
Negotiations through the intermediary of tribal leaders began several days ago with the hope of taking Bani Walid without bloodshed.
Meanwhile NTC military spokesman Ahmed Omar Bani confirmed earlier reports of the death of Kadhafi's son Khamis, and said that the son of the strongman's spy master Abdullah Senussi was also killed.
"I can confirm that Khamis and Mohammed (Senussi) both of them (were) killed around Tarhuna," he told reporters in Benghazi, adding that Khamis had been buried near Bani Walid and Mohammed in southern Libya.
Khamis, 28, the youngest son of Kadhafi, commanded a brigade seen as the most effective and loyal force of the Libyan leader. Rebel fighters captured its base south of Tripoli in fierce fighting last week.
Bani Walid is the heartland of the powerful Warfalla tribe, which made up the core of Kadhafi's army and was given top political positions within the regime.
But it has split over whether to back Kadhafi or not, said tribesmen who have sided with the NTC and are among the NTC forces besieging the town.
Kenshil said earlier that the pro-Kadhafi forces numbered between 30 and 50 men, "very well-armed, with machine-guns, rocket-launchers and snipers."
Anti-Kadhafi fighters had previously moved to within 15 to 20 kilometres (10 to 12 miles) of Bani Walid with a view to launching an assault if the talks broke down.
They had set a deadline of 0800 GMT Sunday for its surrender, though the TNC last week announced an overall truce until September 10 in a bid to negotiate the surrender of centres such as Kadhafi's hometown of Sirte as well as Bani Walid.
Kenshil said the forces holding out in Bani Walid had been assured they would be well treated if they gave up.
Civilians coming from Bani Walid said most of Kadhafi's forces had now fled, taking their heavy weaponry with them into the surrounding mountains.
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In London, NTC spokesman Guma al-Gamaty said that when captured Kadhafi should stand trial in Libya and not at the International Criminal Court in The Hague that has issued an arrest warrant for suspected crimes against humanity committed during the uprising.
"The ICC will only put Kadhafi on trial for crimes committed over the last six months," Gamaty told BBC television.
"Kadhafi is responsible for a horrific catalogue of crimes committed over the last 42 years, which he should stand trial for and answer for and he can only answer for those in a proper trial in Libya itself."
Gamaty said it would be up to the court to determine whether a death sentence was appropriate for Kadhafi, but added: "The court will be fair and just and will meet all international standards.
"It will be a fair trial -- something that Kadhafi has never offered any Libyans who criticised him over the last 42 years."
Italian Foreign Minister Franco Frattini warned against too thorough a purge of Kadhafi appointees in the Libyan apparatus, pointing to the chaos that had ensued in Iraq when even low-ranking officials of Saddam Hussein's Baath party were stripped of their jobs after the 2003 US-led invasion.
In fresh revelations from documents obtained by media and rights groups in Tripoli, Britain's Sunday Times said London invited two of Kadhafi's sons to the headquarters of the SAS special forces unit in 2006 as then premier Tony Blair tried to build ties with the Libyan regime.
The Mail on Sunday said Kadhafi's regime warned of "dire consequences" for relations between Libya and Britain if the cancer-stricken convicted Lockerbie bomber died in a Scottish jail.
Senior British officials feared Kadhafi "might seek to extract vengeance" if Abdelbaset Ali Mohmet al-Megrahi was not released, it said.
Megrahi is the only man convicted of the December 1988 bombing of Pan Am flight 103, which killed 270 people when it exploded over the Scottish town of Lockerbie.
He was said to be only three months from death when he was freed on compassionate grounds by the Scottish government on August 20, 2009, but he was found to be still alive, though very feeble, in Tripoli last week.
Interim defence minister Jallal Dghaili arrived in Tripoli from Benghazi on Sunday with a large following as the NTC gradually transfers from its eastern base to the capital.
Anwar al-Feitiri, interim communications and transport minister, told AFP there are now regular connections between the two cities, although every flight requires NATO permission due to an air embargo that is still in force.
Meanwhile, a senior senior Libyan rebel commander Monday demanded an apology from Britain and the US after seized documents suggested both countries were complicit in a plan that led to his detention and torture.
Files unearthed from Kadhafi's intelligence archives documented the capture by the CIA of Abdel-Hakim Belhaj in Bangkok in 2004 and his forcible repatriation to Libya, where he had fought the old regime.
He was then jailed in Tripoli's notorious Abu Selim prison for seven years and maintains he was questioned by British intelligence officers during his captivity.
Belhaj, now military commander of Tripoli, told BBC: "What happened to me was illegal and deserves an apology." Britain's Guardian newspaper Monday quoted him as saying he he was considering suing both the governments.
"I was injected with something, hung from a wall by my arms and legs and put in a container surrounded by ice," he said of his time in prison. "They did not let me sleep and there was noise all the time. I was regularly tortured.
"I'm surprised that the British got involved in what was a very painful period in my life," he added.