Sri Lankan soldiers captured Mullaitivu last Sunday
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The Tamil Tigers say that 250,000 civilians in the conflict zone in north-eastern Sri Lanka want to stay to be protected by the rebels.
Sri Lankan President Mahinda Rajapaksa had appealed to the rebels to allow the civilians to leave. But his government also ruled out a ceasefire.
Rebel political chief B Nadesan said the people did not wish to end up in the hands of "their killers".
Health officials and rights groups say hundreds of civilians have died.
'Rights breaches'
President Rajapaksa said he was offering safe passage to the civilians so they could leave.
The BBC's Chris Morris in Colombo says Mr Nadesan told him that 28 people had been killed by shellfire since Mr Rajapaksa's offer of safe passage.
There is no way of independently verifying casualty claims by either side in the conflict.
President Rajapaksa had earlier said the rebels were refusing to let the civilians leave.
"I urge the [Tamil Tigers], within the next 48 hours to allow free movement of civilians to ensure their safety and security. For all those civilians, I assure a safe passage to a secure environment," he said.
Mr Nadesan denied the rebels were blocking civilians.
He also said he was in daily contact with the Tigers' Vellupillai Prabhakaran and that the rebels' main leader was still full of enthusiasm.
Mr Nadesan said suggestions that the Sri Lankan army was about to win the war against the Tigers were wrong.
The European Union on Friday called for a halt to the conflict.
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INSURGENCY TIMELINE
1976: Liberation Tigers of Tamil Eelam form in the north-east
1987: India deploys peace-keepers to Tamil areas but they leave in 1990
2002: Government and rebels agree ceasefire
2006: Heavy fighting resumes
2009: Army takes main rebel bases of Kilinochchi and Mullaitivu
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EU Humanitarian Aid Commissioner Louis Michel said: "This is an escalating humanitarian catastrophe. We are extremely worried about the terrible situation facing people trapped in the fighting."
UK Foreign Secretary David Miliband said that he was again calling for an "immediate humanitarian ceasefire".
But the Sri Lankan government has ruled out a truce.
Human Rights Minister Mahinda Samarasinghe told reporters on Friday: "We will continue with our military operations and we will continue to liberate areas which have not been liberated so far."
Our correspondent says that displaced civilians who do manage to leave the war zone are held in government-managed camps to which there is no media access.
The UN High Commissioner for Human Rights, Navi Pillay, has said she is extremely concerned about the well-being of people caught up in the fighting.
She said the situation could be worse than generally realised because of the restrictions to access to the war zone.
The army is facing monsoon conditions in its push into the jungle
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Ms Pillay said there appeared to be "very grave breaches of human rights by both sides in the conflict and it is imperative that we find out more about what exactly has been going on".
On Friday, the Reporters without Borders group also appealed to President Rajapaksa to allow local and foreign journalists to report freely.
The government has declared a "safe zone" for civilians but rights groups say the army is still firing into it and that the rebels are using civilians there as hostages.
The Red Cross says the humanitarian situation in the north-east "remains precarious for thousands".
"Stocks have been depleted and sustainable ways of producing food locally have become almost nonexistent," it said.
The UK has said it is doubling its emergency humanitarian aid with another £2.5m to support Red Cross operations and help maintain relief convoys.
Secretary of State for International Development Douglas Alexander said: "Not enough aid is getting through to those who desperately need it."
Heavy fighting
The military says it is involved in a final push against the retreating rebels.
It has captured the key towns of Kilinochchi, Mullaitivu and the strategically important Elephant Pass in recent weeks.
The BBC's Ethirajan Anbarasan is at Elephant Pass with the army.
He says he can hear artillery fire 15km (nine miles) to the south and has been told there is heavy fighting there.
Our correspondent says commanders are confident the fighting will be over in the coming days - though they do not specify how long exactly it will take. They are upbeat and say rebel resistance is crumbling.
He has been told another 10 rebels have been killed in the latest fighting, though this too cannot be independently verified.
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