The G8 powers failed on Tuesday to agree on a no-fly zone over Libya, a setback to the chances of swift action to halt Muammar Gaddafi's advance against rebel forces that leaves the ball with the U.N. Security Council.
In a blow to France's efforts to use the crisis in Libya to reassert its leadership in international diplomacy, a G8 meeting resisted French pressure to come out in support of a no-fly zone and made no mention of the issue in its final communiqué.
The Libyan crisis dominated the first meeting of France's Group of Eight presidency, but Germany and Russia blocked flight restrictions sought also by Britain, leaving the group with a position that contained strong words but little substance.
"The Americans are moving towards the security council, the Russians want more detail on the no-fly zone and are cautious, but the Germans blocked it completely," a G8 diplomatic source said after the talks.
"We are in a race against time between building a politically legitimate operation and taking action."
The stalemate echoed a lack of consensus over the issue at the U.N. Security Council, of which Russia is a permanent veto-holding member and Germany a temporary member.
Seize strategic towns
Gaddafi's forces seized two strategic towns in eastern Libya on Tuesday, forcing insurgent fighters to retreat and opening up the road to Benghazi.
Forces loyal Gaddafi said late on Tuesday that they will soon move against the rebel bastion of Benghazi in the east, state television quoted a statement from the army as saying.
Libya's army told residents in Benghazi that it will come on what it called a "humanitarian mission" to save them from rebels controlling the eastern city.
The army also urged Benghazi residents to not allow their children to join the rebels it described as "terrorists".
In New York, members of the U.N. Security Council are expected to receive a draft resolution later on Tuesday (2000 GMT) calling for a no-fly zone and stepped-up sanctions against Gaddafi and his inner circle, council diplomats told Reuters.
The 15-nation body is not expected to vote on the draft on Tuesday, as most member states will need time to consult with their capitals about the no-fly zone, the diplomats said.
Veto powers Russia, China and the United States, along with Portugal, Germany and South Africa are among the members that have doubts about the idea of a no-fly zone for Libya.
Russian Foreign Minister Sergei Lavrov said a call by the Arab League for a no-fly zone over Libya was short on detail and more information was needed on how it could work, given the Arab League's opposition to foreign military intervention.
The G8 communiqué stated that Libyans had the right to democracy and that Gaddafi faced "dire consequences" if he ignored citizens' rights. It urged the U.N. Security Council to increase pressure on him, including via economic measures.
It stressed the importance of the Arab League's involvement in any action taken in the OPEC oil exporting nation.
France and Britain have led calls for an internationally enforced no-fly zone to slow the advance of Gaddafi's troops, who are using airpower and tanks to crush a revolt.
The counter-offensive against poorly armed rebels fighting to end 41 years of Gaddafi's rule has pushed insurgents 100 miles (160 km) eastwards in a week and analysts worry that the slowness to respond will mean more bloodshed.
French Foreign Minister Alain Juppe admitted early in the talks he had been unable to win G8 backing for a no-fly zone.
Delegate sources said opposition was strongest from Germany.
"Military intervention is not the solution. From our point of view it is very difficult and dangerous," German Foreign Minister Guido Westerwelle told reporters. "We do not want to get sucked into a war in North Africa and we would not like to step on a slippery slope where we all are at the end in a war."
The United States has also called for more clarity on what the no-fly zone sought by the Arab League would entail.
British Foreign Secretary William Hague said the G8 agreed on the need for further measures but not on what they might be.
Ministers discussed ideas like establishing "safety zones" in Libya and ramping up sanctions, but Hague stressed that any action would be agreed via the U.N. Security Council.
"There is common ground here in the G8 and while not every nation sees eye to eye on issues such as the no-fly zone, there is a common appetite to increase the pressure on Gaddafi," Hague told reporters, mentioning tighter sanctions as one idea.
"We are clear here at the G8 that there is a need for further measures, a need to respond urgently," he said.
U.S. Secretary of State Hillary Clinton met Mahmoud Jebril, a member of the Libyan National Council opposition group, in Paris on Monday but left for Cairo before the main G8 talks.
France's U.N. ambassador said Paris was "deeply distressed" by the Security Council's failure to react to advances by troops loyal Gaddafi against the revolutionary fighters.
Going into a closed-door council discussion of Libya, the envoy, Gerard Araud, told reporters that clamping a no-fly zone on Libya took precedence for France over further sanctions against Libyan leaders.
"We are deeply distressed by the fact that things are worsening on the ground, that the Gaddafi forces are moving forward and the council has not yet reacted," Araud said.
The Security Council slapped asset freezes and travel bans on leading Libyan figures in a resolution on Feb. 26 but has taken no further action. Since then, Gaddafi's forces appear to have turned the tide against rebels advancing from the east.
Araud said France wanted the council to act "as quickly as possible" to establish a no-fly zone.
Sanctions on foreign minister
The United States meanwhile imposed sanctions on Libya's foreign minister and 16 state-owned companies, ratcheting up pressure on the embattled regime Gaddafi.
The U.S. Treasury Department announced "further steps to isolate the Gaddafi regime," targeting Libyan Foreign Minister Mussa Kussa and 16 firms it identified in Libya’s banking, oil, aviation and investment sectors as being owned or controlled by the Libyan government.
Kussa, a former head of Libya’s Intelligence Agency, was slapped with sanctions under an order from President Barack Obama whose targets include senior officials of the Libyan government.
"Today’s designation of Mussa Kussa builds on the strong steps taken by the United States to apply targeted, financial pressure on the Gaddafi regime," David Cohen, acting under secretary for terrorism and financial intelligence, said in the statement.
Under the sanctions, all of Kussa's assets subject to U.S. jurisdiction were frozen, and US persons were prohibited from doing business with him.
Afriqiyah Airways, the National Oil Corporation and sovereign wealth fund the Libya Investment Authority were also subjected to sanctions.