“Qaddafi’s fighters must retreat from cities and nearby areas for any cease-fire deal, . . .”
LOL. Why would Ghadaffi accept that? He moves his guys out into the desert where air assets can attack them.
When one side starts losing it needs time to regroup and rearm. But in this particular case the rebels (reportedly on the retreat) issued something that looks like an ultimatum to the winning side, which indeed doesn't make any sense from any point of view. A good general would just ignore it and proceed with the offensive until all the goals are reached. A prolonged, back-and-forth civil war is much worse on the country than a quick, decisive and brutal destruction of enemy's fighting power. Think Fallujah, for example, which at one point in time was a center of rebel activity, and if left untreated it would be manufacturing jihadists until today.
As I see it, the best outcome for Libya would be to have the rebels defeated. It is nearly impossible to create democracy using military means, especially without wide support of the population. History shows that once fighters win they tend to keep fighting someone else, or each other. War is a very undemocratic way of bringing democracy to any country. As the Libyan example demonstrates, you need only a tiny number of "rebels" (a couple thousand) to become a political force and issue orders to UN and NATO. Did anyone ask the remaining tens of millions of Libyans what they want?