They are poised about 100 miles from Sirte, ready to launch an assault if negotiations for a peaceful surrender fail.
Moussa Ibrahim, Gadhafi's chief spokesman, told the Associated Press late Saturday that Gadhafi is offering to negotiate with the rebels to form a transitional government.
Ibrahim, identified by his voice, said Gadhafi appointed his son al-Saadi to head the negotiations.
In the past, Gadhafi referred to the rebels as "thugs" and "rats."
Rebels suspect that loyalists in Sirte do not want to give up because Gadhafi may be hiding there.
Tripoli is now almost completely under rebel control, but the humanitarian crisis in the capital city is growing.
There are widespread shortages of fuel, water and electricity. Supplies are starting to come in by sea.
The Associated Press contributed to this report.