A “friendship deal” worth billions of pounds has been signed by the Italian and Libyan leaders as part of a package of investment and reparations for 32 years of colonial rule.

In a ceremony at the weekend in Benghazi, Silvio Berlusconi, the Italian Prime Minister, told Colonel Gaddafi that Italy apologised and “fully and morally recognises the damage inflicted on the Libyan people during the colonial period”, from 1911 to 1943.

The deal is about much more than healing past wounds, however. Italy hopes to secure access to Libya's oil and gas reserves and development contracts, as well as to receive greater co-operation in controlling illegal immigration of Africans. The accord “gives us the possibility of having Libyan oil and gas, which are of the best quality”, Mr Berlusconi said. “And it means fewer clandestine immigrants that leave from their coasts and come to us.”

Italian officials said that the payments comprised “some billion dollars” in compensation and $5 billion (£2.75 billion) in investments, including the construction of a highway from the Tunisian border to Egypt. It also involves a project to clear landmines dating back to the colonial era.

The ceremony came nearly 39 years after the young Colonel Gaddafi deposed the British-installed King Idris and set out on his “Green Revolution”, giving more than 20,000 Italians who had settled in Libya only days or hours to leave. Since then the countries have had a rocky relationship, with Colonel Gaddafi sometimes co-operative - he once helped to bail out a cash-strapped Fiat - and at other times belligerent: two Libyan missiles landed just short of Lampedusa in 1986.

Relations were threatened in 2006 when Roberto Calderoli, then the Reforms Minister, wore on TV a T-shirt with a Danish cartoon that had infuriated Muslims. Ten people were killed in riots in Benghazi.

Italy ostensibly came to the rescue of Libya in 1911, ousting the Turks from Cyrenaica and Tripolitania, but never relinquishing control. In 1934 the two provinces were united by Mussolini under the name Libya, the ancient Greek term. Italo Balbo, the Governor, encouraged thousands of Italians to settle there. Libyans put up a strong resistance and Italian repression was brutal. Tens of thousands were killed. Thousands were interned in concentration camps and others were taken to prison in Italy.

The Second World War involved Libya directly when the British fought German and Italian forces there.

Gaddafi has long called for a formal Italian apology and significant economic compensation. Italian authorities have been spurred to conclude an agreement as it became obvious over the past few years that the exodus of immigrants from Africa to Italy could not be managed without Libya's help.

Despite a pact with Libya to increase coastal patrolling, the continuous stream of desperate Africans has continued, sometimes with more than 100 a day landing on the shores of Lampedusa.

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