Tribesmen and politicians in Libya's oil-rich east have polarized public opinion, raised fears that the country might break apart and prompted some of his sharpest statements yet from the interim leader.
Analysts say the problem lies not with the federalism they are proposing but with the unilateral way in which a political movement in the second city of Benghazi is seeking to carve out an autonomous territory in the oil-rich region.
On Tuesday, tribal and political leaders in Benghazi declared the eastern region of Cyrenaica as autonomous but recognized the ruling National Transitional Council (NTC) as Libya's legitimate representative in foreign affairs.
Libyan university professor Sadiq Budawara said "many may agree that federalism is the most appropriate form of government for Libya and that it doesn't necessarily pave the way for partition.
"But it is an entirely different matter when the decision to go federal is made by one region unilaterally without consulting other regions. This will split the land."
Libya was a federal union from 1951 to 1963 under the late King Idris I, which divided the country into three states -- Cyrenaica, Tripolitania and Fezzan.
Partisans of a return to federalism say it will prevent the east from being marginalized as was the case for decades, while opponents fear it will spark a power struggle that splits the country well before elections.
Benghazi-based Libyan political analyst Mohammed bin Hariz told Agence France Presse federalism would exacerbate rather than ease tensions in Libya, which is striving for national reconciliation after last year's conflict.
"Advocates argue that federalism is a safety valve for national unity but federalism and unity are contradictory terms that cannot co-exist," bin Hariz told AFP.
The distribution of oil wealth, he warned, could engender conflict, especially since the issue of marginalization is a claim that can be easily staked across Libya, including poorer neighborhoods of the capital.
"What did federalism achieve in Iraq," he asked, pointing to the ongoing struggle between the autonomous oil-rich northern region of Kurdistan and the central government in Baghdad.
Jamal bin Dardaf, member of the National Campaign to Raise Political Awareness, said the call for an autonomous region is a reaction to the problems caused by "the sharp centralism" of Gadhafi.
That centralism meant that all official business had to be conducted in the capital, an expensive proposition for most pockets.
But dividing Libya into separate states joined by a loose federation, as was the case under the monarchy, might not present the best formula because present conditions differ entirely from those days, he said.
"Libya is a vast country and (back then) its areas where disconnected," making regional autonomy a necessity, he said. Today, telecommunications and road networks facilitate greater cooperation and cohesion.
Political analyst Abdel Salam al-Raqiyi says it is normal for the country to debate what system of governance it wants but that any decisions need to wait until the election of a constituent assembly in June.
"The federalists have a democratic right to express their thoughts on the type of government they want and to field candidates for the election of a constituent assembly just like the other parties," he said.
"But if the intention was to secession of the region of Berqa (Cyrenaica) and the establishment of an independent date, then the move has no legitimacy and moreover no one will agree to it," Raqiyi continued.
Senior officials in Tripoli, including interim leader Mustapha Abdul Jalil and Prime Minister Abdul Rahim al-Kib, have flatly rejected the federalist project as a throwback to the past.
Instead, they promote a program of decentralization that would give more than 50 local councils considerable decision-making powers and discretionary budgets.
On Tuesday, Abdul Jalil said he had been surprised by the Benghazi declaration, as Libyans from east to west had fought together to overthrow the dictatorship of Moammar Gadhafi in 2011.
He also charged that some unnamed Arab nations were supporting and financing "sedition" in eastern Libya to thwart the success of the revolution and prevent the so-called Arab Spring from reaching their doorsteps.
On Wednesday, the usually soft-spoken leader toughened his tone, threatening force to preserve the country's unity and calling on his brothers in the east to not be fooled by "infiltrators" and remnants of Gadhafi’s regime.
In a nod of support to the interim authorities, which have struggled to exert their authority across Libya, a political party dominated by the Muslim Brotherhood said it too was opposed to federalism.
"Like all Libyans, we reaffirm our rejection of federalism," read a statement issued by the newly formed Justice and Construction party, which is headed by a member of the Muslim Brotherhood but includes other Islamists and independents.
"Federalism is an inadequate model for Libya, both in the short term and the long term," it said.
Ahmed Zubair al-Senussi, who was appointed head of Cyrenaica's governing council on Tuesday, downplayed fears that the federal model would splinter the country.
"This is not sedition," he said in an interview with Agence France Presse, arguing that federalism, which thrived in the United Arab Emirates, is the most suitable form of government for Libya.
Senussi is a relative of the late king, who was overthrown by Gadhafi in a 1969 coup, and was the longest serving political prisoner under Gadhafi’s regime. He is also a member of the NTC.
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