Pro-Gadhafi forces pounded opposition fighters with artillery, rockets and gunfire on Monday, stopping the rebels from advancing toward the capital of Tripoli.
However, Libyan rebels say they're regrouping and will bring in heavy weapons to fight Gadhafi's forces.
Rebel forces say they do have control of the town of Zawiya, which is just 30 miles west of Tripoli and has seen some of the heaviest fighting since the crisis began in February. Rebels there say they're seizing weapons from Gadhafi's fighters.
"They are killing the people by snipers- civilian peoples. We are the resistance here, and we will stay until the liberation of whole Libya, but Zawiya is liberated, from the sea to the desert," said one rebel.
As the fighting continues, Britain and France are drafting a U.N. resolution that would establish a no-fly zone over Libya.
A British diplomat at the U.N. stressed that the resolution is being prepared as a contingency in case it is needed, but no decision has been made to introduce it at the U.N. Security Council.
Some lawmakers argue taking out Libya's air defenses could stop Gadhafi from using his air force to massacre a large number of civilians, but not everyone is supportive of the plan.
"Well, you know, lots of people throw around phrases like 'no-fly zone,' and they talk about it as if it's just a game, a video game or something," said William Daley, White House Chief of Staff. "Some people who throw that out have no idea what they're talking about."
President Barack Obama warned Libya's leaders that the U.S. and its NATO allies are still considering military options in response to what he called "unacceptable" violence perpetrated by Gadhafi forces.
"I want to send a very clear message to those who are around Colonel Gadhafi. It is their choice to make how they operate moving forward. And they will be held accountable for whatever violence continues to take place," Obama said.
Obama said he has also authorized $15 million in humanitarian aid to help international and non-governmental organizations assist and evacuate people fleeing the violence in Libya.
The Associated Press contributed to this story.