Missing separator in Makefile?

Given your update with the error, check what you have on the line before those ${CC} commands. Many make programs require a real tab character before the commands and editors that put in eight spaces (for example) will break them. That's more often than not the cause of the "Missing separator" errors.

You can see that with the following transcript. In the file, there are four spaces before the $(xyzzy):

xyzzy=echo
all:
    $(xyzzy) hello

So, when I make it, I get the same error as you:

pax> make
makefile:3: *** missing separator.  Stop.

But, when I edit it and turn those four spaces into a tab, it works fine:

pax> make
echo hello
hello

---

You also have a problem with the way you're trying to combine the source files together.

Without a -c flag to gcc, it will try to create a separate executable from each of those commands, almost certainly leading to linker errors. You're going to need something like (simple):

CC = gcc
CFLAGS = -Wall -g

# Just compile/link all files in one hit.
demo: demo.c lib.c
   ${CC} ${CFLAGS} -o demo demo.c lib.c

clean:
    rm -f demo

or (slightly more complex):

CC = gcc
CFLAGS1 = -Wall -g -c
CFLAGS2 = -g

# Link the two object files together.

demo: demo.o lib.o
   ${CC} ${CFLAGS2} -o demo demo.o lib.o

# Compile each source file to an object.

demo.o: demo.c
   ${CC} ${CFLAGS1} -o demo.o demo.c

lib.o: lib.c
   ${CC} ${CFLAGS1} -o lib.o lib.c

clean:
    rm -f demo

The problem with the first solution is that it unnecessarily compiles both programs even when only one is out of date. The second solution is a little more intelligent.

Same error. When I use vi here, special characters won't show.

Cause is simple: There should be a TAB not spaces in front of ${CC}.

Do you miss some "tab" (\t) before ${CC} by any chance?

Often my editor will replace tabs by spaces and I'd get this message.

CC = gcc
CFLAGS = -Wall -g

demo:
[TAB]${CC} ${CFLAGS} demo.c -o demo
lib:
[TAB]${CC} ${CFLAGS} lib.c -o lib
clean:
[TAB]rm -f lib demo