Despite a barrage of French airstrikes during the weekend on Islamic militant strongholds in Mail's northern desert, Diabaly was attacked and overrun, French Defense Minister Yves Le Drian said.
"They took Diabaly after intense fighting and after resistance by the Malian army, which was not sufficiently equipped at the time," he said Monday.
The advance opened another route to the capital of Bamako and highlighted the risks of a French aerial campaign in tandem with a weak Malian army, The Wall street Journal said Monday.
Sunday French jets bombed rebel training camps and other targets, France's Defense Ministry said in a statement.
"France's goal is to lead a relentless struggle against terrorist groups, preventing any new offensive of these groups to the south of Mali," the ministry said in a statement.
France also deployed several hundred ground troops in Mali, where they soon may be joined by troops from African nations, CNN said.
Islamic rebels admitted Sunday they suffered losses in fights with the country's military and French troops, but vowed the losses wouldn't stop them.
"This is a holy war," Sanda Ould Boumama, said a spokesman for rebel group Asar Dine, which has ties to al-Qaida. "Our fighters are prepared to die for our cause."
A former French colony, Mali had military rulers for decades until its first democratic elections in 1992. It was stable politically until March, when a group of soldiers toppled the government. Islamist groups and secular Tuareg rebels took advantage of the subsequent political upheaval to seize northern Mali in April. But the Islamists later took control of the north's major towns and imposed a strict interpretation of Sharia law.
As French fighters battle the Islamists, other world leaders mulled what steps to take.
The U.N. Security Council was to discuss the conflict Monday as more governments, including the United States and Britain, consider greater support for the Malian government, CNN reported.
British Prime Minister David Cameron, meanwhile, said no British troops will provide support on the ground in Mali even though Britain is offering logistical support to France, the BBC said.
"What is being done in Mali is in our interests and [we] should support France's actions," Cameron said.
Besides assisting France with logistical matters, Cameron said Britain would share intelligence.
"There is a very dangerous Islamist regime allied to al-Qaida in control of the north of that country. It was threatening the south of that country and we should support the action that the French have taken," he said.
The Obama administration also was nearing a decision to offer limited support to France, The Wall Street Journal said.
The Defense Department is preparing reconnaissance drones and other air-intelligence equipment for possible deployment within days, U.S. and French officials told the Journal.
French Foreign Minister Laurent Fabius said if France hadn't stepped in, it was possible the Islamists could have advanced to Bamako, the capital, with "appalling consequences," the BBC reported.
The quickness of French intervention contrasts with the caution exercised by the United States in the region to counter extremists, The New York Times reported.
The Times said U.S.-trained officers participated in the Mali coup.
A confidential internal review last summer by the Pentagon's Africa Command concluded the coup developed too fast for U.S. commanders or intelligence analysts to spot clear warning signs.
"The coup in Mali progressed very rapidly and with very little warning," Africa Command spokesman Col. Tom Davis said. "The spark that ignited it occurred within their junior military ranks, who ultimately overthrew the government, not at the senior leadership level where warning signs might have been more easily noticed."
However, one Special Operations Forces officer disagreed, saying: "This has been brewing for five years. The analysts got complacent in their assumptions and did not see the big changes and the impacts of them."