UPDATE 1-Oil prices rebound on weaker dollar, production cuts
* Oil up on weak dollar, output cuts by OPEC, other producers
* No apparent progress towards peace after Zuma visit
* NATO back in action over Libya hours after Zuma trip-TV
* Gaddafi wants a cedasefire, S. African President says
(Edits headline, paragraph 8)
By Peter Graff
TRIPOLI, May 31 Under pressure from a new round of defections, Libyan leader Muammar Gaddafi renewed a ceasefire call in talks with an African mediator but gave no sign he will heed Western-led demands that he step down.
The mediator, South African President Jacob Zuma, said after a whistlestop visit on Monday that Gaddafi wanted a ceasefire including an end to NATO bombing -- terms already rejected last month after an earlier mediation mission by Zuma.
Zuma added, without elaborating: "We discussed the necessity of giving the Libyan people the opportunity to solve their problem on their own."
Within hours of his departure, Libyan television reported that NATO aircraft had resumed attacks, striking what it called civilian and military sites in the desert settlement of Al Jufrah, 460 km (285 miles) southeast of Tripoli.
Coalition aircraft also struck a number of civilian and military sites in the capital's Tajura district, the television reported.
There was no immediate confirmation of the reports.
Western leaders in charge of the two-month old NATO-led air campaign against his forces say they will not stop bombing until Gaddafi steps down.
In Rome, eight Libyan officers, including five generals, appeared at an Italian government-arranged news conference, saying they were part of a group of up to 120 military officials and soldiers who defected from Gaddafi in recent days.
More on Libya [nLDE72H00G]
More on Middle East unrest: [nLDE73H1UN] [nTOPMEAST]
Libya graphics link.reuters.com/neg68r
The defections come two months after that of Libyan foreign minister and former espionage chief Moussa Koussa and the resignation of senior diplomat Ali Abdussalm Treki.
In Rome, one of the defecting officers, who identified himself as General Oun Ali Oun, told reporters: "What is happening to our people has frightened us.
"There is a lot of killing, genocide ... violence against women. No wise, rational person with the minimum of dignity can do what we saw with our eyes and what he asked us to do."
Libyan U.N. ambassador Abdurrahman Shalgam, who has also defected from Gaddafi, said all 120 of the military personnel were outside Libya now but he did not say where they were.
The television broadcast footage of Gaddafi welcoming Zuma, giving the outside world the first view of the Libyan leader since May 11, when he was shown by the country's television meeting what it said were tribal leaders.
Zuma's visit was his second since the conflict began in February. His previous trip made little progress because Gaddafi has refused to end his 41-year-old rule, while rebel leaders say that is a precondition for any truce.
AIR STRIKE TEMPO RAISED
NATO warplanes have been raising the pace of their air strikes on Tripoli, with Gaddafi's Bab al-Aziziyah compound in the centre of the city being hit repeatedly.
A video posted online showed hundreds of angry funeral mourners chanting slogans against Gaddafi, in what activists called proof that demonstrations were growing in the capital.
Gaddafi has retained control of the capital and the west of the country while the east is in the hand of rebels.
Foreign journalists in Tripoli have limited freedom of movement and have had difficulty verifying the extent of hostility or support for the leader in a capital with a fearsome security apparatus.
The video showed hundreds of demonstrators at a funeral, filling a street and chanting "Muammar is the enemy of God!" and "God loves martyrs!"
Activists said it was filmed on Monday at the burial for two slain protesters in the Souq al-Juma district of the capital, an area that has seen some clashes between demonstrators and government security forces in the past.
It was not immediately possible to independently verify the location and time of filming.
Britain said on Sunday it was to add "bunker-busting" bombs to the arsenal its warplanes are using over Libya, a weapon it said would send a message to Gaddafi that it was time to quit.
"Our operation in Libya is achieving its objectives ... We have seriously degraded Gaddafi's ability to kill his own people," NATO Secretary-General Anders Fogh Rasmussen told a NATO forum in Varna, Bulgaria.
"Gaddafi's reign of terror is coming to an end," he said.
Gaddafi denies attacking civilians, saying his forces were obliged to act to contain armed criminal gangs and al Qaeda militants. He says the NATO intervention is an act of colonial aggression aimed at grabbing Libya's plentiful oil reserves.
Britain and other NATO powers are ratcheting up the military pressure to break a deadlock that has seen Gaddafi hold on to power despite a rebellion and weeks of air strikes.
U.S. Admiral Samuel Locklear, commander of the Joint Operations Command at Naples, declined to comment on whether NATO would put forces on the ground but suggested a small force may be needed to help the rebels once Gaddafi's rule collapses.
COALITION MAY FRAY
Britain said the Enhanced Paveway III bombs, each weighing nearly a tonne and capable of penetrating the roof or wall of a reinforced building, had arrived at the Italian air base from where British warplanes fly missions over Libya.
The military alliance says it is acting under a mandate from the United Nations to protect civilians from attack by security forces trying to put down the rebellion against Gaddafi.
But the more aggressive tactics risk causing divisions within the alliance backing the intervention, and could also lead to NATO being dragged closer towards putting its troops on Libyan soil, something it is anxious to avoid.
Further deepening their involvement, Britain and France have said they will deploy attack helicopters over Libya to better pick out pro-Gaddafi forces. Helicopters are more vulnerable to attack from the ground than high-flying warplanes.
Rebels control the east of Libya around the city of Benghazi, Libya's third-biggest city Misrata, and a mountain range stretching from the town of Zintan, 150 km (95 miles) south of Tripoli, towards the border with Tunisia.
Helped by NATO air support, the rebels have been able to repel attacks by pro-Gaddafi forces but in many places they are still under bombardment and cut off from supplies. (Additional reporting by Joseph Logan in Tripoli, Ahmed Tolba and Isabel Coles in Cairo, Joseph Nasr in Berlin, Hamid Ould Ahmed in Algiers, Matt Robinson in Zintan and Tsvetelia Tsolova in Varna; Writing by William Maclean; Editing by Mark Heinrich)
* Oil up on weak dollar, output cuts by OPEC, other producers
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