The US will also remove Libya from its list of state sponsors of terrorism.

The announcement by Condoleezza Rice, the US Secretary of State, marked the culmination of a process that began three years ago when Colonel Gaddafi announced that he would dismantle his country’s weapons of mass destruction programme and open Libya to arms inspections. That deal was forged largely through British diplomacy.

The US has not had full diplomatic relations with Libya since 1980. In 2004 it lifted many economic sanctions and restored some ties after Tripoli renounced its WMD programme.

Dr Rice said that Libya had since shown a “continued commitment to its renunciation of terrorism”, and she praised its “excellent co-operation” in the US-led War on Terror.

The move has dismayed relatives of the Lockerbie disaster’s victims, including Stephanie Bernstein. She said: “This is not a victory for the Libyan people. This is not supporting democracy in Libya.”

In what will be a tense encounter, the State Department has scheduled a meeting next week in Washington for family members of Lockerbie victims, to discuss US-Libyan relations.

The move yesterday was also decried by Libyan exiles, who said that Colonel Gaddafi continued to run a brutal dictatorship. “This doesn’t help the Libyan people who are looking for international assistance to achieve their human rights,” Fayez Jibril, of the Libyan National Congress, an exile group based in Egypt, said.

Dr Rice said that the restoration would benefit both countries, adding: “We have witnessed the beginning of that country’s re-emergence into the mainstream of the international community”.

Libya was held responsible for the bombing of Pan Am Flight 103, which exploded over the Scottish town of Lockerbie on December 21, 1988, claiming 270 lives. Abdel Baset Ali al-Megrahi, a Libyan intelligence officer and the head of security for Libyan Arab Airlines, was convicted in January 2001 for his role in the bombings and sentenced to 27 years in prison.

Yesterday’s announcement could help to bring down fuel prices by permitting greater US investment in the Libyan oil industry.

• The Pentagon listed 759 people who have been held at Guantanamo Bay after a Freedom of Information request by the Associated Press. None of the most notorious suspects was included. The names of 201 of the detainees on the list have never been disclosed. Of the total, 218 were Afghans and 131 were from Saudi Arabia.

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