A Libyan woman walks past a caricature of Muammar Gadhafi near a courthouse in Benghazi June 27, 2011. [Photo/Agencies]

BENGHAZI - Muammar Gadhafi is welcome to live out his retirement inside Libya as long as he gives up all power, Libya's rebel chief said in the clearest concession the rebels have so far offered.

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Gadhafi has resisted all international calls for him to go and said he will fight to the end, but members of his inner circle have given indications they are ready to negotiate with the rebels, including on the Libyan leader's future.

Gadhafi is still holding on to power, five months into a rebellion against his 41-year rule and despite a NATO bombing campaign and an International Criminal Court arrest warrant for crimes against humanity.

"As a peaceful solution, we offered that he can resign and order his soldiers to withdraw from their barracks and positions, and then he can decide either to stay in Libya or abroad," rebel leader Mustafa Abdel Jalil told Reuters in an interview.

"If he desires to stay in Libya, we will determine the place and it will be under international supervision. And there will be international supervision of all his movements," said Jalil, who heads the rebels' National Transitional Council.

Head of National Transitional Council Mustafa Abdel Jalil speaks during an interview with Reuters in Benghazi July 3, 2011. [Photo/Agencies]

Speaking in his eastern Libyan stronghold of Benghazi, Abdel Jalil, Gadhafi's former justice minister, said he made the proposal about a month ago through the United Nations but had yet to receive any response from Tripoli.

He said one suggestion was that Gadhafi could spend his retirement under guard in a military barracks.

Abdel Jalil's remarks stirred an emotional reaction in Benghazi, with a small protest against any talks with Gadhafi breaking out outside a hotel, and the rebel council playing down any speculation about a widening rift among its leaders.

Abdel Hafiz Ghoga, a council vice chairman, told reporters an arrest warrant issued by the International Criminal Court against Gadhafi had now made any such proposal null.

Meanwhile Turkey, which had close economic ties to Gadhafi before the uprising, pledged $200 million in aid for the rebels on Sunday, in addition to a $100 million fund announced in June.

The rebels say they need more than $3 billion to cover salaries and other needs over the next six months.

"Public demand for reforms should be answered, Gadhafi should go and Libya shouldn't be divided," Turkish Foreign Minister Ahmet Davutoglu said in Benghazi.

He added that Turkey saw the rebel council as the people's legitimate representative.