The group is inflicting severe hardship on the city's local population, Human Rights Watch said.
Countries including the U.S. and Russia say they will support exemptions to a U.N. arms embargo.
About 154,000 refugees crossed the Mediterranean from Libya into Europe in 2015.
Amid the celebrations in Derna, schools are reopening and people are returning to work.
As many as 70 Dutch children are believed to be inside the extremist group's caliphate.
Local residents who fled the city say the group are seizing farms to help their financial accounts.
The refugees are believed to have set off from Libya, with 41 survivors now in Greece.
The Libya to Italy route is long and dangerous, but it may soon be the only option.
But other rebels say they won't be so welcoming to the new regime.
The group is increasingly imposing its brutal brand of Sharia law in the city.
Alexey Pushkov said Europe has hushed up links to opposition militants.
The construction worker who had been held for eight months said "you can do many things" with a nail.
Probably, U.S. intelligence sources say. And some fear the jihadi group will now target civilian planes.
British Defense Secretary Michael Fallon announces the deployment of British troops to border area.
French forces backing internationally-recognized government from Benghazi airport, reports say.
Top Libyan commander says that the group "exploited a security vacuum."
Sameh Shoukry says stability in the country "primarily will have to be dealt with by Libyans."