U.S. hopes Libya trip will turn around ties

WASHINGTON (Reuters) - Condoleezza Rice's visit to Libya this week, the first by a U.S. secretary of state in half a century, is a bold signal of better ties but it will take time to erase decades of mistrust and a legacy of violence.

Relations have improved since Libya announced in 2003 it would give up its weapons of mass destruction, but a series of bombing attacks and innate suspicion of the former pariah state marred a dramatic turnaround.

"The history of our reversal in relations with Libya is that things have taken much longer than anyone would have thought," said Jon Alterman of the Center for Strategic and International Studies, a Washington think tank.

The visit was announced on Tuesday by State Department spokesman Sean McCormack, who said: "It certainly does mark a new chapter in U.S.-Libya relations."

Rice, who is expected to meet Libyan leader Muammar Gaddafi on her September 4-7 trip, also will visit Maghreb nations Tunisia,

Rice's brief visit is the first by a U.S. secretary of state since May 1953 by John Foster Dulles. She also plans to go to Tunisia, Algeria and Morocco before returning to Washington on Sunday.

The Tripoli trip follows a deal signed on August 14 between Libya and the United States to settle claims on both sides for bombings.

U.S. victims include those who died in the 1988 airliner bombing over Lockerbie, Scotland, which killed 270 people and for which Libya has taken responsibility, and the 1986 attack on a Berlin disco that killed three people and wounded 229.

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

"I think symbolically this trip is very important because it sends a signal that the last of the remaining political hurdles are being cleared away," said David Hamod of the National U.S.-Arab Chamber of Commerce.

"But building a strong business and cultural friendship takes time and for decades, we have been told that the other is a pariah state," he added.

After Libya gave up its weapons of mass destruction, it expected an immediate thaw and Washington was optimistic of reaping lucrative oil deals.

The United States dropped many sanctions, removed Libya from a terrorism blacklist and restored diplomatic links in 2006, but progress in forging closer ties stalled.

ROADBLOCKS

The lingering mistrust is evident by bureaucratic roadblocks on both sides in issuing visas and setting up fully-functioning embassies -- even though Rice announced in 2006 that full diplomatic ties had been restored.

The U.S. embassy is still housed in a hotel in Tripoli and most visas have to be issued in Tunisia. In Washington, Libya's embassy is in the Watergate complex after attempts to buy several embassy buildings failed largely due to a lack of security clearance from the U.S. government.

The U.S. Senate has also held up confirming the U.S. ambassador to Libya because of the compensation cases.

"They perceive arrogance on our part, especially when they have to deal with all these kinds of bureaucratic issues," said Brenda Smith of the Libya Trade Mission Association, a U.S. trade promotion group.

While U.S. companies hope the new detente will boost business prospects with a country that holds Africa's largest crude oil reserves, the investment climate is seen as unpredictable, as is Libya's eccentric leader Muammar Gaddafi.

Comparing Tripoli's newly strengthened ties with Italy and thawing relations with Washington, Gaddafi said on Monday: "We are not ambitious to be friends with the United States. We just want them to leave us alone and we leave them alone."

U.S. officials, while excited about Rice's trip, are nervous Gaddafi might embarrass the top U.S. diplomat.

"You never know when the banana peel will appear and when something unusual and hard to explain will come up," said Libya expert Michele Dunne of the Carnegie Endowment for International Peace.

While the compensation deal has been publicly announced, details are sketchy and "obscure," said Dunne, which could be a source of future tension between the two.

"One of the twists to all this is the source of funding and if the bulk will be done with a foundation set up and paid for by business interests. The question is: who will put the money in, who manages the money and how is it paid out?" said James Ketterer, deputy provost of the State University of New York.

There are also tensions over Gaddafi's human rights record and his treatment of dissidents, including Fathi al-Jahmi, a former provincial governor held in a Tripoli medical center despite appeals by the United States and others to free him.

Libya expert Alterman said Rice was likely to raise human rights and other issues with Gaddafi but the main goal of the trip is to publicly show a change in the relationship.

"She will have her talking points and he will have his and I imagine they will do some talking past each other, but the meeting is the message here," said Alterman.

(Additional reporting by Tripoli bureau, editing by Vicki Allen and David Storey)