Meanwhile, rebels were bracing for a ground assault by Gaddafi forces on the besieged western port city of Misrata as NATO warplanes struck regime targets further to the west.
The fund, agreed at a meeting of the International Contact Group on Libya yesterday, is intended to provide an emergency lifeline to the rebels, whose provisional administration has no source of financing to replace receipts from oil exports, which have come to a virtual halt.
It will initially receive international donations. Blocked assets -- estimated to be worth USD 60 billion (40 billion euros) in Europe and the United States -- are to be used at a later date.
Italian Foreign Minister Franco Frattini, whose government hosted the meeting, said USD 250 million was already available in immediate humanitarian aid. Wealthy Gulf states Kuwait and Qatar have pledged to be major donors.
The funds made available are far less than the figure of up to USD 3 billion dollars that had been sought by the rebels, but their leader, Mahmud Jibril, said "it's a good start."
Jibril said three billion dollars represent "a six-month budget." French Foreign Minister Alain Juppe said the new fund could be up and running "within weeks."
However, he said it would take longer to tap Libyan government assets frozen abroad under UN sanctions to secure a longer-term credit line sought by the rebels, as unblocking the assets "poses legal problems."
Gaddafi's government was infuriated by the prospect of seeing funds it regards as its own being used to finance the rebels.
"Libya still, according to the international law, is one sovereign state and any use of the frozen assets, it's like piracy on the high seas," Deputy Foreign Minister Khaled Kaim said.
Kaim said there would be no let-up in the government's attempts to block off the maritime lifeline to the besieged city of Misrata -- the rebels'' last bastion in the west.