The international Libya Contact Group has announced the establishment of a special fund called Temporary Financial Mechanism to support the rebels fighting against Libyan dictator Muammar Gaddafi.

The Libya Contact Group - which includes the United States, European powers, allies from the Middle East and international bodies – had its second meeting Thursday in Rome after its first ever meeting in Qatar last month.

However, the work of the Libya Contact Group appears to be becoming harder as divisions reportedly remain within the group on the NATO- led military intervention in Libya, with the Arab League and the African Union continuing to push for a United Nations-coordinated political solution to the conflict, DPA reported.

Italian Foreign Minister Franco Frattini, who co-chaired the meeting, insisted however that there was no stalemate, and that efforts against Gaddafi had gained momentum, at the meeting which is to be followed by another in Abu Dhabi, United Emirates at a yet unspecified date.

"Time is on our side and against Gaddafi," Frattini said, as cited by DPA, speaking at the meeting's concluding news conference.

Many observers say the conflict is deadlocked seven weeks after NATO first launched its campaign, Operation Odyssey Dawn, but Frattini insisted the NATO strikes had made progress, destroying 40% of the arsenal at the disposal of Gaddafi's forces.

"The views of everybody must be respected," the meeting's other co-chair, Qatari Prime Minister Sheikh Hamad bin Khalifa al-Thani, said, referring to the divergent views on military action within the Contact Group.

However, he added that "people are being killed as we speak," and that Gaddafi had yet to show any inclination to accept international demands that he step down and leave the country.

The fund announced in Rome, known as the Temporary Financial Mechanism, "will provide a transparent channel for short term support" to the main rebel grouping the Interim Transitional National Council (ITNC), the Libya Contact Group's co-chairs said in a concluding statement.

Money committed to the fund to date included USD 180 M dollars pledged by Kuwait, the statement said, adding that they hoped 'other states will do likewise.'

The amount falls far short of the USD 2-3 B the Benghazi-based ITNC says it needs to continue it operations against Gaddafi's forces.

The Contact Group is further moving to use funds belonging to the Gaddafi regime to support the rebel-held areas.

Qatari PM Khalifa al-Thani said the meeting had initiated a process that would eventually lead to the release of Libyan state and other funds that were frozen abroad in the wake of the uprising.

The money would be used for 'salaries, medication and food,' in the rebel-held areas of Libya, bin Khalifa al-Thani said.

"We don't have a shortage of money, but a shortage of (financial) mechanism. Now we have this mechanism," he said, also adding that Qatar planned allocating some USD 400-500 M to the fund.

Also attending the Rome talks was US Secretary of State Hillary Clinton, who was not present at the last Libya Contact Group meeting in mid-April in Doha, Qatar.

Speaking in Rome ahead of the meeting, Clinton said it would focus on "how to bring about an end to the violence against civilians and the beginning of a democratic transition to a better future."

For his part German Foreign Minister Guido Westerwelle, also speaking ahead of the meeting, stressed the importance of finding a 'political solution' to the conflict in Libya.

"One sees more and more that a political solution is necessary. The limits of the military are visible," he said, defending Germany's decision not to take part in the NATO airstrikes.

DPA points out that the Contact Group meeting was held against the backdrop of heavy fighting in and around the north-western Libyan city of Misurata, currently besieged by Gaddafi's forces.

On Wednesday, NATO Secretary General Anders Fogh Rasmussen said hostilities would stop only when the mission's objectives had been fulfilled.

He listed these as ending attacks on civilians, securing the withdrawal of military forces and guaranteeing unhindered access to humanitarian aid.

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