The eastern half of the country -- including Benghazi, where the uprising began -- is under the control of people who are being aided by parts of the military, residents told ABC News. But Gadhafi denied that.
Gadhafi made his first appearance on state TV after midnight Tuesday local time to say he's not planning to go anywhere despite protests against his regime.
"I am here to show that I am in Tripoli and not in Venezuela," he said, mocking reports he had fled to Venezuela. "Don't believe those misleading dog stations."
However, there is evidence that the anti-government uprising is loosening Gadhafi's iron grip as Libyan tribal leaders are siding with the opposition and senior Libyan diplomats.
Most recently, the country's interior minister, General Abdul Fatah Younis, resigned from his job and announced he is joining the people's revolution. This came a day after two Libyan air force pilots landed their planes in nearby Malta and asked for asylum after refusing commands to bomb protesters in Benghazi.
"We have never been with Gadhafi. We are with the people," Libyan Deputy Ambassador to the U.N. Ibrahim Dabbashi told ABC News. It's "time for him to be prosecuted."
Libyan diplomat in China, Hussein el-Sadek el-Mesrati, protesting outside the embassy, angrily dubbed Gadhafi a "Hitler."
The Libyan military is relatively large in size. It has 76,000 troops, 1,000 tanks and hundreds of different aircrafts, but the armed forces are overall weak and fragmented. Experts say Gadhafi purposely kept it that way amid fear that his military could turn on him.
But the 42-year regime of the colorful dictator is now under the worst assault it has ever faced. In an oil-rich country where people have lived in fear for so long, they are now suddenly taking to the streets and demanding that Gadhafi leave and there are no signs of the dissent abating.
Secretary of State Hillary Clinton denounced the violence in Tunisia for the first time on camera today.
The U.S. "continues to watch the situation in Libya with alarm," she said. "This bloodshed is completely unacceptable."
With borders closed and TV and Internet jammed, it is impossible to get an accurate picture of what is happening in Libya but there are clear signs that this uprising is turning out to be far more bloody than that in neighboring Tunisia and Egypt. A conservative tally puts the death toll at around 300 from the crackdown.
"What's particularly worrying is the Libyan government seems to be deliberately using live ammunition, in some cases heavy weapons, to attack protesters and we've got reports from the hospital in Benghazi suggesting that many of those who have been killed display wounds four centimeters in diameter, which again suggests high velocity weapons," said Tom Porteous, spokesman for Human Rights Watch. "This is a very serious development and we're afraid that a human rights catastrophe is actually unfolding as I speak."
The growing violence prompted Italy's Premier Silvio Berlusconi to call Gadhafi, but no details of the call were released.
Berlusconi has called Gadhafi his "friend" and Italy relies on Libya for much of its oil. On Monday Berlusconi rebuffed calls for him to try to restrain Gadhafi, saying he didn't want to call the Libyan leader because Gadhafi was busy.