Libyan rebel leaders say they are close to capturing Moammar Gadhafi, and they have issued a stern ultimatum to the deposed strongman's followers: give up or face a vicious attack.

"Sometimes to avoid bloodshed you must shed blood, and the faster we do this, the less blood we will shed," rebel official Ali Tarhouni said on Tuesday.

After months of battles, it appears that Gadhafi's resistance against the rebel onslaught -- bolstered by NATO airstrikes -- is finally coming to an end. Rebel officials also said that Gadhafi himself could soon be captured.

"We have a good idea where he is," a top rebel leader said this week.

But as the search for Libya's most wanted man continues, rebel forces have been preparing for an assault on Sirte, Gadhafi's heavily militarized hometown and the last remaining bastion of his support.

While rebel forces have been negotiating with Gadhafi loyalists over the fate of Sirte, located along the Mediterranean some 400 kilometres from Tripoli, they are not prepared to delay plans for an attack beyond the weekend.

Mustafa Abdel Jalil, the head of the rebels' National Transitional Council, said that negotiations with the loyalists would wrap up after the end of Eid al-Fitr on Saturday, at which point the rebels would "act decisively and militarily."

Speaking to reporters in Benghazi, Jalil said the rebels cannot afford to wait any longer.

"We seek and support any efforts to enter these places peacefully. At the end, it might be decided militarily. I hope it will not be the case," Jalil said Tuesday.

But it appears that Gadhafi is remaining defiant. In an interview with The Associated Press, Gadhafi's top spokesman said that any ultimatum from the rebels will be rejected outright.

"No dignified honourable nation would accept an ultimatum from armed gangs," said Moussa Ibrahim.

Ibrahim repeated an earlier offer that would see Gadhafi's son, al-Saadi, negotiate with the rebels to create a transitional government.

As the country's new government attempted to restore order in areas of capital city, Tripoli, the fledgling leadership also demanded co-operation from neighbouring Algeria, after Gadhafi family members fled across the border Monday.

Safiya Gadhafi, the wife of the absent dictator, entered Algeria on Monday, along with daughter Aisha and sons Mohammed and Hannibal.

Within hours of crossing the border, Aisha Gadhafi gave birth to a baby girl in the city of Algiers, an official inside Algeria's Health Ministry said.

Mahmoud Shammam, information minister in the rebels' interim government, said that allowing members of the Gadhafi clan to stay in Algeria is an "aggressive act against the Libyan people's wish."

Shammam said the rebels are "determined to arrest and try the whole Gadhafi family, including Gadhafi himself. We'd like to see those people coming back to Libya."

The Gadhafi children that have fled to Algeria held prominent roles within their father's regime, which makes them prime targets for prosecution from the rebels' viewpoint.

Looming offensive

NATO spokesperson Col. Roland Lavoie confirmed that there have been negotiations between Gadhafi loyalists and the rebels, saying that it was possible that Sirte could surrender without a fight.

"We have seen dialogues in several villages that were freed -- I'm not saying with no hostilities, but with minimal hostilities," said Lavoie.

Lavoie said that NATO would continue its campaign in Libya as long as civilians in the country remained under threat.

Inside Libya, there is still no confirmation on the whereabouts of Moammar Gadhafi, who remains at large along with several other sons.

The rebels claim that his son, Khamis Gadhafi, was likely killed in a battle that took place last week south of Tripoli. But there has been no confirmation of his death so far.

There is no indication as to how long it will take the rebels to find Gadhafi, especially considering the resources he has at his disposal.

In Gadhafi's absence, ordinary Libyans have been able to take a rare glimpse at the lifestyle that he and his family enjoyed while he was in control.

The public has been astonished to see the level of luxury that existed inside Gadhafi's many mansions, especially surprising for a dictator who claimed to prefer sleeping in a Bedouin tent.

With files from The Associated Press