"Gadhafi forces retreat" - how do you understand that?

This is a type of ambiguous headline known as a crash blossom. From the Wikipedia link:

Newspaper headlines are written in a telegraphic style (headlinese) which often omits the copula and therefore lends itself to syntactic ambiguity, usually of the garden path type. The name 'crash blossoms' was proposed for these ambiguous headlines by Dan Bloom and Mike O'Connell in the Testy Copy Editors discussion group in August 2009 based on a headline "Violinist linked to JAL crash blossoms".[3] The Columbia Journalism Review regularly reprints such headlines in its "The Lower case" column, and has collected them in the anthologies Squad helps dog bite victim[4] and Red Tape Holds Up New Bridge.[5]

One of my favorites from the list there is

The British left waffles on Falklands (Did the British leave waffles behind, or was there waffling by the British Left?)

The editors assume readers are in the know. Regardless, it would probably be more common to read it with retreat as a verb. If forces were to be the verb, then it would be a much poorer headline, as one question would naturally follow: Whose retreat?

I think the editors never noticed the ambiguity. (It's possible they did but didn't care about it since headlines don't follow normal grammar.) Usually the intended structure would have an adjective as the first word, as "Libyan forces retreat", but here they didn't have an adjectival form, so the noun got used, leading to the ambiguity.

My initial reading was with "forces" as the verb. Definitely a poorly-written headline.