By Hadeel Al Shalchi and Ghaith Shennib
TRIPOLI/BENGHAZI, Libya, Oct 23 (Reuters) - Libya marked the first anniversary of its "liberation" of Muammar Gaddafi's rule on Tuesday, but ongoing fighting in one of the dictator's former stronghold overshadowed celebrations.
The oil-producing country was declared "liberated" a few days after Gaddafi's death on Oct. 20, 2011, and while its new rulers have led the nation to elections, they have struggled to impose their authority on a country awash with weapons.
"Our happiness is not complete because there are still some cities that are not fully liberated," said 27-year-old Benghazi shop assistant Baset al-Sharif.
"But October 23 is still a great day and we will celebrate. We will use this occasion to say Benghazi has not yet been given all its rights. The government still has problems to deal with."
Hundreds of people filled Benghazi's streets celebrating the anniversary but also calling for the eastern city, the cradle of last year's revolt, to become Libya's economic capital after what they say were decades of neglect under Gaddafi.
Men, women and children marched to a football stadium where a concert was planned. A small group briefly protested outside a hotel about the violence in Bani Walid where militias loyal to the government continued their assault on the former Gaddafi stronghold. Thousands of families have fled the violence.
"The city continues to be shelled today," Abdel-Hamid Saleh, a member of a Bani Walid civil society group, said by telephone. Shooting could be heard over the line.
"The militias have entered the suburbs with bulldozers and have begun to demolish homes without reason. A woman called me yesterday screaming 'They have come for me, they have come for me' in fear. The city is falling on our heads."
The isolated hilltop town south of Tripoli was one of the last to surrender to rebels last year.
Pro-government forces moved up to Bani Walid this month after rebel fighter Omran Shaban died after two months in detention there. Shaban, from the rival city of Misrata, was the man who found Gaddafi hiding in a drain pipe outside Sirte.
Libya's congress ordered the Defence and Interior Ministries to find those suspected of abducting, torturing and killing Shaban. It gave Bani Walid a deadline to hand them over.
The siege of Bani Walid highlights the government's inability to reconcile groups with long-running grievances, and also its failure to bring many of the militias that deposed the dictator fully under its control.
In Tripoli, the celebratory mood gained pace in the evening as cars flying the Libyan flag and playing patriotic music, filled the streets amid tightened security. Fireworks lit up the sky over Martyr's Square, where hundreds of families gathered.
"We want to express our feelings of happiness that we have never felt this strongly before," said Tripoli resident Muna Abdelsalam, who came to the square with her daughters. "A revolution is going to be difficult and will have problems, but despite the insecurity we are better off today than a year ago."
At the remains of Gaddafi's former Bab al-Aziziya compound, a youth organisation organised an event where people painted their expression of what "Building Libya" means on the walls. One painting showed the word Libya made of concrete blocks.
"Before our revolution we couldn't even walk along this wall let alone stand here. Today the youth are able to express their ideas for everyone to see," Suleiman al-Shawesh, a civil servant and head of the Libya Flame youth organisation.
"The instability we see today is just part of the growing pains of our revolution. We need to keep working to build." (Writing by Marie-Louise Gumuchian)