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Panetta said opposition forces in Libya have made gains in the east and west, and rebel leaders could maintain continuity if Gadhafi is ousted. The NATO military operation, strong economic penalties and the enforcement of the no-fly zone are putting tremendous pressure on Gadhafi.

“I think there are some signs that if we continue the pressure, if we stick with it, that ultimately Gadhafi will step down,” Panetta said.

Republican Sens. Saxby Chambliss of Georgia and Susan Collins of Maine questioned what more must be done to force Gadhafi out, and said the U.S. and its allies must have a plan for Libya once he leaves or chaos will ensue.

Panetta agreed. He said U.S. officials, including Secretary of State Hillary Rodham Clinton, who’s been meeting this week with international leaders about Libya, are working on ways to give rebel forces the capabilities they will need if they have to take control.

On the budget, lawmakers expressed concern about Obama’s call to slash $400 billion more over 12 years even while acknowledging the fiscal reality.

“The defense budget will not, and should not, be exempt from cuts,” said the committee chairman, Sen. Carl Levin, D-Mich.

Panetta indicated that those cuts would not be limited to the military and would extend to homeland security, intelligence and the State Department.

“I do not believe, based on my long experience in government and working with budgets, that we have to choose between strong fiscal discipline and strong national defense,” he said.

In more personal terms, Panetta said his top priority was the troops, pointing out that his youngest son, Jim, served in Afghanistan and received the Bronze Star. He described himself as the son of Italian immigrants and always mindful of his father’s words that “to be free, you have to be secure.”

Focusing on the challenges for the next defense secretary, Panetta said, “We are no longer in the Cold War. This is more like the blizzard war, a blizzard of challenges that draw speed and intensity from terrorism, from rapidly developing technologies and the rising number of powers on the world stage.”

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Associated Press writer Sagar Meghani contributed to this report.