The 'Action at Mechili' was an engagement between units of Major General M. O’M. Creagh’s British 7^th Armoured Division of Lieutenant General R. N. O’Connor’s XIII Corps (ex-Western Desert Force) and the forces of Generale di Corpo d’Armata Giuseppe Tellera’s Italian 10a Armata during the later stages of 'Compass' (i) (24 January 1941).

In this little action, the Italian army redeemed itself from the disastrous fiascos of the campaign’s earlier stages. The previous British advantages in reconnaissance, manoeuvre and artillery support had by this time been greatly reduced by British supply shortages in fuel and artillery ammunition, the fact that the battlefield now comprised hilly and broken terrain, and the lack of forward airfields from which British warplanes could operate. The Italian army positioned itself well, established effective fields of fire, manoeuvred with greater skill, made successful local counterattacks, and inflicted casualties commensurate with what it had earlier received. The Italian forces delayed the British for days, and retreated in good order with lively and effective rearguard actions.

After the 'Capture of Tobruk', the British-led forces had advanced to the west on the northern coast of the Western Desert along the Via Balbia, and inland pursued to the west-south-west to cut the Italian line of retreat in the 'Battle of Beda Fomm'.

After the fall of Bardia on 5 January 1941 and of Tobruk on 22 January 1941, General Sir Archibald Wavell’s Middle East Command tried to destroy the remainder of the 10a Armata as it retreated from Cyrenaica. Major General I. G. Mackay’s Australian 6^th Division headed towards Dern along the Via Balbia, while Creagh’s 7^th Armoured Division was sent into the back-country, along the Trigh Capuzzo track, toward Fort Capuzzo and Mechili. The Australian 6^th Division was temporarily halted at Derna by Generale di Divisione Guido Della Bona’s 60^th Divisione fanteria 'Sabratha' reinforced by the Libyan 1o Reggimento paracudisti 'Fanti dell’Aria' paratrooper battalion and reserve units, while the 7^th Armoured Division approached Mechili, a crossroads of some tactical importance as it seizure would enable the British to attempt an outflanking manoeuvre against the 10a Armata as it retreated along the Via Balbia and cut it off.

The Italian forces defending Mechili comprised Generale di Brigata Valentino Babini’s Raggruppamento 'Babini', the Raggruppamento motorizzato 'Piana' and Generale di Brigata Mario Bignami’s Colonna 'Bignami'. The Raggruppamento 'Babini' had 138 officers, 2,200 men including the 10o Reggimento Bersaglieri, 57 M13/40 medium tanks, 25 L3 tankettes, six armoured cars, eight 75-mm (2.95-in) guns, eight 100-mm (3.94-in) guns, eight 47-mm guns, 16 machine guns including four 12.7-mm (0.5-in) heavy machine guns, seven Solothurn anti-tank rifles, six mortars, 30 flamethrowers, 90 light trucks, 160 heavy trucks and 180 motorcycles. The Raggruppamento motorizzato 'Piana' had 121 officers, 2,241 men, 12 105-mm (4.13-in) 105/28 guns, 24 75-mm (2.95-in) 75/27 guns, 12 65-mm (2.56-in) 65/17 mm guns, 12 machine guns, 18 45-mm mortars, 10 flamethrowers, 115 light trucks, 83 heavy trucks and 120 motorcycles. The Colonna 'Bignani' had the XXV and XXVII Battaglioni Motorizzati Bersaglieri, a group of 12 75-mm (2.95-in) 75/27 guns detached from the 25a Divisione fanteria 'Bologna' and the VI and XXI Battaglioni di Carri Armati with 37 M13/40 tanks each. The Raggruppamento motorizzato 'Piana' and the Colonna 'Bignami' were kept in reserve.

The 7^th Armoured Division had 50 cruiser tanks and 95 Light Tanks Mk VI. The vanguard of the division was Brigadier J. A. L. Caunter’s 4^th Armoured Brigade, with the 3^rd Hussars (equipped with 25 light and nine cruiser tanks), the 7^th Hussars (26 Mk VI light tanks and one cruiser tank) and the 2^nd Royal Tank Regiment (six Mk VI, three Cruiser Mk I, seven Cruiser Mk II and 11 Cruiser Mk III tanks).

The area to the east of the Jebel Akhdar mountains was garrisoned by Generale di Corpo d’Armata Annibale Bergonzoli’s XX Corpo d’Armata with Della Bona’s 60a Divisione fanteria 'Sabratha' and the Raggruppamento 'Babini', which had 120 tanks. The latter included 82 new M13/40 tanks, which needed 10 days to be made battle-worthy but had nonetheless been rushed forward. The 60a Divisione held a line from Derna, along the Wadi Derna to Mechili, with the Raggruppamento 'Babini' at Mechili, Giovanni Berta and Chaulan, guarding the infantry formation’s flank and rear. Unlike Tobruk and Bardia, Derna had not been subjected to bombing before the attack.

On 23 January, the 10a Armata's commander, Tellera, only newly promoted to this position, ordered a counterattack against the British to avoid an envelopment of the XX Corpo d’Armata from the south. On 24 January the Ragguppamento 'Babini', with 10 to 15 new M13/40 tanks, attacked the 7^th Hussars as the latter headed to the west to cut the track linking Derna and Mechili, in the area to the north of Mechili. The British promptly pulled back, calling for the assistance of the 2^nd Royal Tank Regiment, which complacently ignored the signals. The British lost several tanks and knocked out two M13/40 tanks, until eventually the 2^nd Royal Tank Regiment got under way and caught the Italian tanks while they were skylined on a ridge and knocked out seven of them for the loss of one cruiser and six light tanks.

On 25 January, in the north, the Australian 2/11^th Battalion engaged the 60a Divisione fanteria 'Sabratha' and the 10o Reggimento Bersaglieri of the Raggruppamento 'Babini' at Derna airfield, making slow progress against determined resistance. Italian bombers and fighters flew sorties against the Australian 2/11^th Battalion as it attacked the airfield and high ground at Siret el Chreiba. The Bersaglieri swept the flat ground with field artillery and machine gun fire, halting the Australian advance 3,000 yards (2745 m) short of its objective. The 4^th Armoured Brigade was ordered to encircle Mechili and cut the western and north-western exits, while the 7^th Armoured Brigade cut the road from Mechili to Slonta, but the Raggruppamento 'Babini' had slipped away from Mechili during the night and retreated to the south of Slonta to Bir Melez and Antelat, covering 140 miles (220 km) through sandstorms and air attacks, pursued by the 4^th Armoured Brigade until it had to stop on the 28 January for lack of fuel, exhaustion and the degradation of the camel tracks into deep mud as a result of rain.

On 26 January, Graziani ordered Tellera to continue the defence of Derna and to use the Raggruppamento 'Babini' to stop the British-led advance westward from the area of Mechili and Derna area. Tellera requested more tanks, but this was refused until the defences of Derna began to collapse during the following day. During this day, the Australian 2/4^th Battalion in the area of Derna and Giovanni Berta area, attacked and cut the road linking Derna and Mechili, and one company crossed the Wadi Derna during the night against bold Italian counterattacks. On the northern edge of the wadi, a determined counterattack with artillery support was made across open ground by the Bersaglieri which, with reports in the morning that the Raggruppamento 'Babini' was attacking round the southern flank, deterred the Australians from continuing the advance on Derna but cost the Bersaglieri 40 men killed and 56 taken prisoner.

During 27 January, Australian attempts to attack were met by massed artillery fire, against which the Australian artillery was rationed 10 ten rounds per gun per day. The Australian 2/4^th Battalion repulsed another battalion-strength counterattack. A column of Bren Gun Carriers of the Australian 6^th Cavalry Regiment was sent south to reconnoitre the area where the Italian tanks had been reported and was ambushed by a detachment of the Raggruppamento 'Babini' with concealed anti-tank guns and machine guns; four Australians were killed and three taken prisoner. On 28 January, the 11^th Hussars found a gap at Chaulan, to the south of the Wadi Derna, that threatened the Raggruppamento 'Babini' and the defenders in Derna with encirclement, and Bergonzoli ordered a retirement. The Italians disengaged on the night of 28/29 January, before the garrison could be trapped. Rearguards of the Raggruppamento 'Babini' cratered roads, planted mines and booby traps, and undertook several skilful ambushes, which slowed the British pursuit. Derna was occupied unopposed on 29 January and the Australians began a pursuit along the Via Balbia, closing on Giovanni Berta during 31 January.