Libya signs bombing compensation deal with U.S.

TRIPOLI (Reuters) - Libya and the United States signed a deal on Thursday to compensate all U.S. and Libyan victims of bombings or their relatives, clearing the way for the former foes to improve faltering ties.

U.S. victims covered include those who died in the 1988 bombing of Pan Am Flight 103 over Lockerbie, Scotland, that killed 270 people and the 1986 attack on a Berlin disco that killed three people and wounded 229, Libyan officials said.

It also covers Libyans killed in 1986 when U.S. planes bombed Tripoli and Benghazi. Forty people died.

"This will turn a new page in our relationship," David Welch, U.S. assistant secretary of state for Near Eastern affairs, said at the signing ceremony in Tripoli.

Ties between OPEC member Libya and the United States have improved dramatically since 2003, when Libya accepted responsibility for the Lockerbie bombing and said it would stop pursuing nuclear, chemical and biological weapons.

Since then, the United States has dropped many sanctions, removed Libya from a terrorism blacklist and restored diplomatic links after decades of enmity. Muammar Gaddafi's Libya has slowly emerged from its international isolation.

But Libya objected early this year to new U.S. legislation to enable terrorism victims to collect damages from governments such as Libya by having their assets frozen. The deal on Thursday resolves that dispute.

"This international agreement between the two sides ends any pending issue between Tripoli and Washington. It clears the way for normal and complete relations between Libya and the USA," Azzam Eddine of the Libyan negotiating team told Reuters.

Welch told reporters he was optimistic the deal would be implemented soon: "This agreement will settle the last major issue, which is compensation."

END LEGAL LIABILITY

Thursday's agreement would end the legal liability to Libya stemming from multiple lawsuits by families of the U.S. victims, the Libyan officials said.

They declined to give financial details on the compensation, including who would pay the Libyan victims. Among the dead in the U.S. bombings was Gaddafi's adopted daughter.

In Washington, State Department spokesman Robert Wood also declined to provide figures but said the deal was pursued on a "purely humanitarian basis" and did not constitute an admission of fault by either party.

He said an international Humanitarian Settlement Fund would be established in Libya to collect "the necessary resources" for the claims on both sides. He provided no details on who would contribute to the fund.

"Each side will be responsible for distributing the resources it receives to its own nationals and to ensure the dismissal of any related court actions," Wood said.

U.S. Secretary of State Condoleezza Rice had held back on visiting Libya because of the issue and human rights concerns but she said in recent months she hoped to visit Tripoli soon.

"Should the secretary decide at some point that it makes sense to go to Libya, then she will do that," Wood said.

Democratic Sen. Joseph Biden, who heads the powerful Senate Foreign Relations Committee, welcomed the deal and said it showed that diplomatic engagement worked.

"I urge the Bush administration to use this opportunity to assert America's interests in a broader relationship that will put Libya on a more sustainable, and more democratic path," the Delaware senator said in a statement.

Libya has Africa's biggest oil reserves but the years of sanctions left them under-developed and it has held a series of fiercely competitive energy exploration licensing rounds since the sanctions were dropped.

As energy revenues begin to recover, lucrative markets are emerging for foreign companies. Libya wants to spend 150 billion dinars ($124 billion) to regenerate its infrastructure.

"This deal will help foreign firms push further into Libya's oil upstream and increase Libya's hydrocarbon receipts and prestige on the international stage," said Geoff Porter, an analyst at Eurasia Group in New York.

He said firms had feared U.S. legislation that could allow a court to seize their assets if they did business in countries that failed to pay compensation for terrorist acts.

(Additional reporting by Sue Pleming in Washington; Writing by Lamine Ghanmi and Tom Pfeiffer; Editing by Matthew Tostevin)