Increasing numbers (hundreds so far) members of the armed forces are defecting to the rebels. This has included at least five generals. The defectors believe that Kaddafi is doomed in the long run and that most Libyan soldiers are hostile to Kaddafi's attacks on civilians. The use of mercenaries for a lot of this dirty work has been unpopular among Libyan troops, and helped turn many of Kaddafi's civilian supporters against him. There are more protests in Tripoli, indicating that Kaddafi is losing popular support in the city that was always his main source of power and trusted personnel. There is also apparently a lot more accurate, and reliable, target information coming from inside Tripoli. A lot more targets inside Tripoli are being hit, and they are nearly all things valuable (in a military or personal sense) to Kaddafi.
NATO aircraft have begun making daytime bombing raids on Tripoli, especially on targets that are symbolic of Kaddafi's power. An example of this was smart bombs bringing down the guard towers on the walls of the large fortress in the middle of Tripoli. This is where Kaddafi lives, and many of his key aides come to work. Despite defections, Kaddafis forces are still formidable. The mercenaries will fight as long as they are paid, and Kaddafi has enough cash to keep that going for months, if not longer. The rebels are still basically civilians with guns. But more of these rebel fighters are getting a few weeks of real military training from Libyan army veterans, and foreign "civilians" (either veterans working as contractors, or special operations troops in civilian clothes). The rebel fighters are gaining more combat experience, and that is producing effective combat leaders as well. But the rebels still face a long and bloody fight to take Tripoli, unless Kaddafi, or most of his henchmen, can be persuaded to make peace.
Westerners have been seen working with rebel fighters in combat areas. The foreigners are giving tactical advice, and apparently directing air strikes by NATO aircraft overhead. This prompt and accurate availability of air support has caused Kaddafi forces to avoid direct combat with the rebels. Instead, the Kaddafi forces use their artillery and tank cannon to fire on rebel-held areas, and small groups of Kaddafi gunmen make raids (riding in civilian vehicles to avoid being identified from the air.) The rebels have sent their own columns of armed men to seek out and destroy the Kaddafi raiders. So far, those encountered appeared to be mostly African mercenaries.
The search for Libyan assets overseas has found over $50 billion so far, most of it in accounts controlled by the Kaddafi family. The rebels have to deal with some legal obstacles before they can take possession of this money. The rebels need cash, because Libya has long run on oil money, and the food and other goods it could buy abroad and import.
The oil fields controlled by the rebels are still not pumping oil. This is because columns of pro-Kaddafi gunmen are still roaming around, threatening to kill any rebel civilians they encounter. This means that that rebel oil workers fear to man isolated facilities, especially along the pipelines. There is also a shortage of skilled oil workers, as most of those, as is common in Arab countries, were foreigners, and nearly all foreigners fled once the fighting began. The rebels must bring enough law and order to the oil facilities before foreign workers can be brought back. The legal obstacles to selling rebel controlled oil appear to have been solved. At least one cargo was bought by an American firm.
The NTC (National Transitional Council) controls most rebel activities, but its 31 unelected members are under growing pressure to hold elections and restore peacetime conditions to rebel held areas (which is now most of the country). Most NTC members, however, refuse to hold elections as long as Kaddafi is alive, or still in the country. The longer the civil war goes on, the more resistance there is to NTC rule in rebel-controlled areas.
May 30, 2011: The president of South Africa, who has long been on good terms with the Libyan leadership, has arrived in Tripoli to help arrange peace talks, to give Kaddafi an opportunity to give up the fight. But Kaddafi said he was only interested in a ceasefire. The bombing, which keeps hitting targets where Kaddafi is believed to be, is something Kaddafi wants to stop.
May 27, 2011: Russia has withdrawn its support for Kaddafi, the last major power to do so. Kaddafi now has no one in the UN, or any other major diplomatic forum, to defend his interests.