No watchtowers don't work, infact they probably attract them, also leaving fog of war means that rebels may be present and you don't detect them.

I've also had rebels ambush me, (quite often in fact) though they usuaully appear and dissapper each turn. Spies will reveal them.

An interesting way to use watchtowers is as a rebel attractor, place the watchtower near a choke point and your opponents don't like to take out your rebels for you to get at you, hence they serve as protection albeit costing you in trade.