Addressing selected supporters late on Tuesday, Gaddafi called the rebels "rats" and denounced Western nations. "They want Libyan oil," he said.
"France now raises its head and says that it will strike Libya," Gaddafi told the gathering at his Bab al-Azizia fortified compound in central Tripoli.
"Strike Libya?" he asked. "We'll be the one who strikes you! We struck you in Algeria, in Vietnam. You want to strike us? Come and give it a try."
His speech came as world powers wrangled over a draft resolution on imposing a no-fly zone over Libya to prevent Gaddafi's advancing forces from using their air superiority to take the rebel capital, Benghazi, in the east.
The draft was distributed by Britain and Lebanon at a closed-door UN security Council meeting, on Tuesday, after the Arab League called on Saturday for the Council to set up the no-fly zone.
Nawaf Salam, Lebanese ambassador and Arab League representative, said a no-fly zone would not qualify as foreign intervention in Libya.
However, the military action faced resistance from other nations, including Russia and China.
"Some members have questions and they need clarifications before a decision is made," Li Baodong, China's ambassador, told reporters. But he added: "We are very concerned about the deteriorating situation in Libya".
Concerns raised
The United States was also being cautious about implementing the no-fly zone. However, Mansour El Kikhia, a political analyst from the University of Texas, told Al Jazeera that the US and president Barack Obama needed to assume more responsibility as a world power.
"[Obama] heightened expectations and didn't follow through ... [this situation] requires an American leader who can actually follow up his words with actions," El Kikhia said.
Opponents of the no-fly zone want to know who will take part in it and how it will be patrolled. Hardeep Singh Puri, India's envoy, raised questions about the ban on "all flights".
Portugal, Germany and South Africa have also raised doubts about the idea of a no-fly zone for Libya.
New "paragraph by paragraph" talks on the draft resolution are to be held on Wednesday, Mark Lyall Grant, Britain's envoy, said. But diplomats said no vote was likely before Thursday.
In his short, emotional speech on Tuesday, Gaddafi attacked Britain for calling for a no-fly zone. "What right do you have? Do we share borders? Are you our tutor?" he said.
Libyans would fight to the death to defend their country, he said.
He criticised the Arab League, which has backed a no-fly zone, saying it was "finished", and the Gulf Co-operation Council, which he said had lost its legitimacy.
"The Arab League is finished. There is no such thing as the Arab League," Gaddafi said.
"The Gulf Co-operation Council is finished. It's actually the 'Gulf Unco-operative Council' ... The Arab people [however] remain."
Regaining control
During his appearance, a crowd watching on a TV projection on a wall in Benghazi shouted curses and threw shoes at the image.
As before, Gaddafi played down the scope of the conflict in his country. "They said thousands have died, but only 150 have died," he said.
Libyan state television aired calls for the opposition to stop fighting, apparently hoping to sway populations in the east away from support of the rebels.
"Those who are asking you to put down your arms want peace for you, so please help them and stop shedding blood," the broadcaster said.
"Libya is for everyone and by everyone. So let God's word be the highest and the word of evil be the lowest."
Meanwhile, a Libyan official said the government hoped to regain control over all rebel-held territories soon.
"We hope [it will be done] as soon as possible. I hope it will be in a matter of days," Khaled Kaim, the deputy foreign minister, told Reuters in Tripoli.