Milan: Ruling out negotiations with anti-government rebels whom he described as "terrorists linked to Osama bin Laden", Libyan leader Muammar Gaddafi on Tuesday warned that if the West were to attack his country, he would ally his forces with al-Qaeda in a "holy war".

Gaddafi made the remarks in an interview with Milan-based daily Il Giornale from his headquarters in the Libyan capital Tripoli. Asked whether he feared ending up like former Iraqi leader Saddam Hussein, who was toppled by a US-led invasion and then hanged for war crimes, Gaddafi said: "No, our war is against al- Qaeda."

However, "if they (the West) behave with us as they did in Iraq, then Libya will leave the international alliance against terrorism. We will then ally ourselves with al-Qaeda and declare a holy war," Gaddafi said.

Gaddafi had previously accused anti-government rebels of being "hostages" of al-Qaeda and warned that no dialogue with them was possible. "They (the rebels) don't have any hope. Their cause is lost. They only have two possibilities: to surrender or to flee," Gaddafi said.

Berlusconi betrayed me: Gaddafi

Speaking on the hostility showed to him and his regime by some of his close western aides, Gaddafi said to the Italian daily that he feels betrayed by Europe but is especially dismayed by Italian Prime Minister Silvio Berlusconi with whom he has the closest ties.

“I'm really shocked by the behaviour of my European friends, in the first place by Silvio Berlusconi.” Italian daily Il Giornale is owned by the Berlusconi family.

“I'm so shocked. I feel betrayed. I don't know what to say to Berlusconi,” he said.

Italy has frozen assets owned by Libya to conform to sanctions implemented by the UN and the European Union after Gaddafi's armed forces fired on anti-government protesters. The conflict has since escalated and is described by the Red Cross as civil war.

After scrapping its covert nuclear weapons programme and making payments to family members of the hundreds of people killed in the 1988 bombing of Pan Am Flight 103 over Lockerbie, Scotland, international sanctions against Libya were lifted and Gaddafi was let back into the diplomatic fold, awarding lucrative contracts to oil companies, especially Italy's Eni.

Berlusconi stood out among European leaders by inviting Gaddafi to visit Italy numerous times, even kissing his hand and making him a special guest during the 2009 Group of Eight meeting in L'Aquila.

Italy is Libya's biggest trading partner, importing around 25 percent of its oil and 12 percent of its natural gas from the country. Italian businesses were also granted preferential treatment for taxes and imports as part of a controversial 'friendship' pact signed in 2008.

Italy last month suspended the pact, under which it had agreed to pay five billion euros in reparations to Libya for its 1911-1943 occupation and colonisation of the country and to build Libya a new highway.

Gaddafi said he would consider new contracts for oil and gas exploration with companies from Italy and other European counties, but only when Berlusconi and other leaders have been swept from power.