Nato acknowledged late Sunday that it was responsible for civilian deaths in Tripoli after Libyan officials showed reporters five bodies, two of them of toddlers, they said were among nine people killed in a "barbaric" air strike.
Rebels fighting the four-decade rule of Gaddafi meanwhile warned that they were running out of money as their struggle enters a fifth month and called on governments in the Nato-led coalition to make good their promises of funds.
An alliance statement released in Brussels said "Nato acknowledges civilian casualties in Tripoli strike" during action targeting a missile site.
"It appears that one weapon did not strike the intended target and that there may have been a weapons system failure which may have caused a number of civilian casualties," the statement added.
The admission that the civilian deaths were caused by Nato was an embarrassment for the alliance which has led the bombing campaign under a UN mandate to protect civilians.
Libyan government spokesman Mussa Ibrahim accused the Western alliance of "deliberately targeting civilians," insisting there were no military targets anywhere near the residential area of Tripoli that was hit early on Sunday.
However, officials from the rebel-held east of the country blamed Gaddafi for the deaths, charging that the veteran strongman was deliberately using schools and mosques to stash arms.
"We are sorry for the loss of civilian life," said rebel spokesman Abdel Hafiz Ghoga, adding: "We hold the Gaddafi regime responsible for having placed military armaments and rocket launchers near civilian areas."
Journalists were taken to the Al-Arada district of Tripoli to see rescue teams and bystanders desperately searching for survivors among the wreckage of a two-storey block of flats after the early morning air strike.
An AFP correspondent saw two bodies pulled from the rubble.
Reporters were then shown three bodies in a Tripoli hospital, two of them of toddlers and one of them of a woman.
Tripoli insisted the scene was not staged after officials showed journalists a little girl in hospital two weeks ago they said was wounded in a Nato air strike, only for a member of the medical staff to announce she had been injured in a traffic accident.
The alliance has acknowledged mis-hits in the past, mostly involving rebel fighters wrongly identified as loyalist troops.
On Saturday, Nato acknowledged that aircraft under its command had accidentally hit a rebel column near the oil refinery town of Brega on the frontline between the rebel-held east and the mainly government-held west on Thursday.
Calls are increasing for a negotiated solution to the conflict, as the fighting on the ground has degenerated into a bloody stalemate.
The rebels said nine people were killed and 51 wounded as rebel and pro-Gaddafi forces tried to break a month-long deadlock around the Libya's third largest city Misrata, a rebel-held enclave in the mainly government-held west.
After talks in Cairo on Saturday, the African Union, the Arab League, the European Union and the United Nations highlighted the importance of "accelerating the launch of a political process" to end the conflict.
Rebel spokesman Ghoga said a negotiated solution had not been ruled out, but that Gaddafi and his family could not be a part of it.
The rebels said on Sunday they have not yet received any of the roughly one billion dollars promised by international donors earlier this month, and urged benefactors to make good on their promises to provide funds.
"(The) funds should have been deposited from last week and none have been deposited to date," Ghoga said.
Senior rebel leader Mahmud Jibril is to begin a two-day visit to China on Tuesday, Beijing announced, as it pressed efforts to protect its substantial economic interests in Libya.
China, which abstained in the UN vote authorising military action, has already held two confirmed meetings with rebel leaders.
Its commercial interests in Libya include oil, telecoms and rail projects. It was forced to evacuate more than 35,000 workers from the north African state when unrest broke out in mid-February.
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