West prepares to hand rebels Gaddafi's billions

Recognition as legitimate government may unlock $30bn war chest

More than 30 countries yesterday recognised Libya's rebel movement as the legitimate government as they tried to end the war and unseat a defiant Colonel Muammar Gaddafi.

The statement by nations meeting in Istanbul for the fourth time since Nato attacks against Gaddafi's regime began in March could allow the US to free up more than $30bn of Gaddafi's assets held by American banks for the opposition fighters. France has agreed to unfreeze $250m in assets for the opposition, while Italy pledged to unfreeze an additional $100m. Kuwait and Qatar reportedly have given about $100m to the opposition.

The meeting laid out a blueprint for a transition of power in which Gaddafi would be given the option to call a ceasefire and relinquish power. "Increasingly the people of Libya are looking past Gaddafi. They know, as we all know, that it is no longer a question of whether Gaddafi will leave power, but when," said Hillary Clinton, the US Secretary of State.

Predictably, Colonel Gaddafi immediately lashed out at the statement. "Trample on those recognitions, trample on them under your feet ... They are worthless," he said in an audio speech carried on Libyan television. While the tough talk was typical of the dictator, there have been reports that that Gaddafi has sent out emissaries seeking a negotiated end to the conflict, which could include him stepping down.

Whether the rebel Transitional National Council (TNC) can grasp the opportunity offered by yesterday's developments offered remained to be seen. The war against Gaddafi, which the European-led command had hoped would be over in a few weeks, has extended into months. Each time the opposition forces appear to close in on Tripoli from their strongholds in the east or the west, a heavy military defeat has seen them beating a hasty retreat. Yesterday, regime forces reportedly repelled an attack by Nato and rebel forces on the key eastern oil town of Brega.

The US and its allies, however, hope that the official recognition and a cash injection may spur the rebels on. Western military trainers are already on the ground in Libya, helping the poorly-qualified and ill-equipped opposition fighters form their military strategy.

"The United States views the Gaddafi regime as no longer having any legitimate authority in Libya," said Ms Clinton. "And so I am announcing today that, until an interim authority is in place, the United States will recognize the TNC as the legitimate governing authority for Libya, and we will deal with it on that basis."

British Foreign Secretary William Hague also took part in the meeting and representatives from the Arab League. Russia and China, whose leaders have criticised Nato operations and launched their own negotiations with Gaddafi and the rebels, were absent.

"The Russian approach to the issue remains unchanged: we are not joining the group and are not participating in its activity," said Alexander Lukashevich said, a Russian government spokesperson.

The TNC leadership, however, were jubilant, calling for more money to aid them in their push towards Tripoli. The UN Secretary-General's special envoy to Libya, Abdul Elah al-Khatib, now has the task of presenting terms for Gaddafi to leave power, but talk of a peaceful end to the conflict came with a pledge from Mr Hague that Gaddafi should not expect a let up in Nato operations. "The military pressure will continue to intensify," he said.

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