But Qaddafi hasn't shaken his pariah status yet. A wide range of U.S. restrictions on investment and trade with Libya remains in place, and the Bush Administration is fiercely divided over whether to lift them. At issue is more than just the testy relations between longtime foes, or even the hopes of companies such as AmeradaHess Corp., ConocoPhillips (COP
), and a handful of others to regain access to rich Libyan oil and gas concessions, some of which date back to the 1950s.
Instead, at stake is a potentially important issue in the war on terrorism: If a state that sponsors terror changes its ways, should it be rewarded? The answer to this question could help determine whether other countries on the Administration's list of terror-sponsoring regimes -- Iran, Sudan, Cuba, North Korea, and Syria -- see any reason to change their behavior besides, of course, the fear of becoming the next target of "regime change." Lifting sanctions on Libya "creates an incentive for [countries] to do the right thing," says Jon B. Alterman, a former State Dept. official now at the Center for Strategic & International Studies in Washington.
Familiar camps are facing off in this debate. Conservative hard-liners want to keep U.S. sanctions on Libya to pressure Qaddafi to improve his human-rights record and punish him for allegedly developing weapons of mass destruction. An Administration source says National Security Adviser Condoleezza Rice has ordered a policy review, including an analysis of intelligence suggesting Qaddafi is developing chemical weapons and retains contacts with some terrorist groups.
The various diplomats, think tanks, and lobby groups that favor a lifting of sanctions argue that Libya's steps to meet international demands should be cautiously recognized. Instead of undermining its neighbors, Tripoli is now mediating African conflicts. While the regime may still have ties to some terrorists, it isn't the financial and ideological sugar daddy it once was. A target of al Qaeda, which tried to destabilize Libya in the 1990s, Qaddafi's government is even sharing intelligence with Washington. If the U.S. doesn't reduce sanctions, the message it would send rogue nations is that "it doesn't matter what you do, you're a marked regime," says Chester A. Crocker, a former diplomat who led a review of Libya policy for Washington's Atlantic Council think tank.
Rice's review of Libya will likely take weeks. Only then will President George W. Bush decide whether to rescind executive orders dating back to the 1980s, pre-Lockerbie, when Qaddafi was stirring up trouble on numerous fronts. These orders froze about $1 billion in Libyan assets and prohibit all investment and almost all trade with Tripoli. The 1996 Iran-Libya Sanctions Act, which bars any oil-industry investment of more than $20 million in Libya, lifts sanctions once the President certifies that the country has met U.N. demands.
The White House's decision is made all the more difficult now that the Pan Am 103 families have a deal. "Every Administration has been able to hide behind the families," says Stephanie Bernstein of Bethesda, Md., whose husband died in the crash. "Now they can't do that anymore." For the Bush team, the war on terrorism gets more complicated by the day. By Stan Crock in Washington EDITED BY Edited by Rose Brady