WASHINGTON -- Washington was suspending relations with the Libyan Embassy in the United States, though the move falls short of severing diplomatic relations, Secretary of State Hillary Clinton announced Thursday.

A senior Obama administration official told Fox News that the U.S. has formally asked Libya to "shut down" its embassy in Washington, a recognition of the fact that the White House no longer views Muammar al-Qaddafi as the legitimate leader of his nation.

However, the official cautioned that this does not constitute a recognition of the Libyan opposition, or any segment of it, as the legitimate leadership of the Libyan nation; nor does the move mean that the U.S. has formally cut off diplomatic relations with the Qaddafi regime.

"We don't want [to have] no avenue" to communicate with Qaddafi's people," the aide told Fox News. "If we formally cut off diplomatic relations, then we formally cut off all communications with the regime, and we don't want that."

Speaking at a House of Representatives budget hearing, Clinton said she would meet with Libyan opposition figures when she travels to Egypt and Tunisia next week, marking the highest level contact between the U.S. and anti-Qaddafi elements controlling most of the east of the country.

Meanwhile, in a day of intense discussions on two continents, the European Union added new sanctions on Libyan companies and Germany froze billions of dollars in Libyan government assets.

The United States and NATO allies agreed to develop contingency plans for air patrols over Libya to protect civilians, but most nations hope those are never used.

"We all agreed that NATO will only act if there is demonstrable need, a sound legal basis and strong regional support," Defense Secretary Robert Gates said after discussions ended at NATO headquarters in Brussels.

The military alliance will continue examining "all military options," including protective aerial cover, Gates said. "But that's the extent of it."

In Washington, Obama's national security adviser, Tom Donilon, said the United States soon will send disaster assistance relief teams into the eastern part of the country. Those would be the first American personnel to enter Libya since the U.S. Embassy was closed last month.

"They are not going in in any way, shape or form as military operations," Donilon said. "It can in no way be seen as military intervention."

Clinton warned of tougher action to force Qaddafi to leave after 42 years in power. But she cautioned that a go-it-alone approach could have unforeseeable and devastating consequences.

The United States wants international backing for anything beyond modest humanitarian help for Libyans caught in violence that could soon slide into civil war, even if no plans for military intervention ever come to pass.

Clinton acknowledged that the administration was caught in a bind with Libya after four decades of stop-and-go relations and in light of the deep skepticism over U.S. motives in the Middle East.

"We can stand on the sidelines and hope and pray for the best; we can get so involved that we are accused of interfering, going after oil, trying to occupy another Islamic country," Clinton said.

"Or we can try to do what we are doing, which is, be smart about how we offer assistance, how we respond, how we bring the international community along. And that's the toughest of the options, but that's what we're trying to do," she said.

The diplomatic push came as Libyan government forces drove hundreds of the rebels from a strategic oil port with a withering rain of rockets and tank shells on Thursday, expanding Gadhafi's control as Western nations scrambled to devise a unified strategy to stop him.

While discussions continued on a European proposal at the United Nations for authorization of a no-fly zone, the Obama administration voiced its strongest words of caution.

Part of the U.S. hesitation reflects an acknowledgment that any such zone would require an assault on Libyan air defenses, a step tantamount to war. American officials also are worried about shouldering the costs and risks involved with the operation.

"It's easy for people to say `Do this, do that,' and then they turn and say `OK, U.S. go do it,"' Clinton said of the international negotiations. She said that would mean the U.S. suffers the "consequences if something bad happens."

The Libyans possess a lot of Russian equipment with about 31 surface-to-air missile sites, or SAMs, he said. They also have a large number of portable SAMs and an air force of approximately 80 planes -- split evenly among transports, helicopters and fighters.

The hearing took place a day after President Obama's top national security aides held private talks on military options in Libya. Officials said they gained a growing sense that a no-fly zone would have a limited impact on halting the violence, though they stressed that the option remained on the table.

U.S. officials have noted in recent days that the tactic may be ineffective because Qaddafi appears to be using his planes sparingly in his crackdown on rebels. Military experts say the use of jets by Qaddafi loyalists poses less of a threat than the deployment of attack helicopters, which can get around flight prohibitions because they are harder to detect.

The Obama administration has little enthusiasm for military intervention, fearful of plunging into another war with a Muslim country as it tries to manage exit strategies for U.S. troops in Iraq and Afghanistan.

NATO did agree to move a number of ships that are now in the Mediterranean closer to Libyan shores to better monitor compliance with a U.N. arms embargo against Libya and provide humanitarian aid to civilians, if needed. The ships include several that are conducting a naval exercise in the Mediterranean.

Fox News' James Rosen and The Associated Press contributed to this report.