President George Bush has signed legislation that paves the way for the US to settle all remaining lawsuits against Libya by American terrorism victims, and paves the way for complete rapprochement between the former rogue state and the US.

After decades as a pariah nation, the last steps for Libya's complete rehabilitation can now be taken, once the country pays hundreds of millions of dollars in compensation to US victims of Libyan sponsored terrorism. These include the 1988 bombing of Pan Am Flight 103 over Lockerbie that killed 270 people and the 1986 bombing of a Berlin disco, La Belle, that killed three people and wounded 229.

The Libyan Claims Resolution Act creates a fund to compensate the victims, and grants Libya immunity from terror-related lawsuits. Under the arrangement, the country would not accept responsibility for the acts but would provide the money to compensate the victims.

"For too many years, Libya has refused to accept responsibility for its horrific acts of terrorism against American victims," said Senator Frank Lautenberg, the New Jersey Democrat who sponsored the original legislation to allow compensation.

"But after the pressure we applied, Libya will finally be held accountable for these devastating events. "

Libya has yet to sign the agreement, although it had worked out the deal with the US to resolve all outstanding cases. U.S. officials said they expected it to sign after the deal became US law. Congress has blocked direct aid to the country, as well as the construction of a new US embassy there and the confirmation of the first US ambassador to the nation until US victims are paid.

The bill will allow the Lockerbie and La Belle victims, who already have settlements with Libya, to recover the full amount they're owed. Libya has paid the 268 families involved in the Pan Am settlement $US8m ( £4065000) each but it owes them $US2m ( £10162) more.

"It is a relief to say that this part of our fight is coming to an end," said Kara Weipz, spokeswoman for the Families of the Victims of Pan Am 103. "There are still a lot of things that we want to know."

The U.S had no diplomatic relations with Libya from 1980 to 2003, when President Muammar Gaddafi agreed to abandon his weapons of mass destruction programmes, stop exporting terrorism and compensate the victims of several Libya sponsored attacks.

The country was then given a reprieve from U.N, US and European sanctions, removed from the State Department's list of state sponsors of terrorism and allowed a seat on the UN Security Council.

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