However, Washington and London have said that Libya must first accept its responsibility for the Lockerbie bombing, and pay compensation to the victims' families - two of the conditions for lifting the UN sanctions.

UN terms for ending sanctions

Co-operate fully with Lockerbie trial Renounce terrorism Admit responsibility Pay compensation

Although Libyan officials say they respect the verdict of the Lockerbie trial, Foreign Minister Abderahman Shalgam said Libya would never accept responsibility for the actions of its alleged agent.

He also rejected calls to pay compensation, saying Libya was never compensated for the death and destruction caused by the US bombing of Tripoli and Benghazi.

Yet behind the scenes, diplomats are trying to find a face-saving formula for Libya to end its isolation and resume normal relations with the West - although the US and UK do not necessarily see eye to eye on this.

Start of sanctions

The US first began sanctions against Libya in January 1986, freezing Libyan assets after becoming convinced that the country was sponsoring international terrorism.

When Libya refused to hand over the Lockerbie suspects in 1992, the UN banned arms sales, as well as all air traffic in and out of the country.

It applied more sanctions the following year, especially against the oil industry.

Washington stepped up the pressure still further in 1996 with the Iran and Libya Sanctions Act, which threatened penalties against any foreign business or institution that invested more than $40m a year in projects deemed likely to help the Libyan oil industry.

Libya relents

When Libya finally caved in and handed the Lockerbie suspects over in April 1999, the UN suspended its air, weapons and diplomatic sanctions.

But the US retained its own unilateral sanctions, pending compensation for the Lockerbie victims' relatives.

We are now looking forward to lifting of sanctions with the United States and the United Kingdom

Abuzed Omar Dorda

The UK has publically insisted that a final lifting of the UN sanctions will still require Libya's full compliance with UN resolutions.

Although hurt by the verdict, Libya knows that it must meet UN demands if it is to end its political isolation.

Libya's UN ambassador, Abuzed Omar Dorda, has been more conciliatory in his reaction to the verdict than the foreign minister, implying that Libya will comply with the demand to pay compensation after the appeal.

The UK may be prepared to accept compensation without a formal admission of responsibility, but Washington appears to be taking a harder line.

Economic pressures

President Bush is anxious not to be seen as soft on rogue states in his first term in office.

But he is also under opposing pressures from, on the one hand, the US relatives of the Pam Am flight, and, on the other, oil companies which are anxious to secure lucrative contracts in Libya.

The Washington-based lobby group USA Engage suggests that sanctions cost American companies billions of dollars in lost exports every year.

Libyan oil is cheap to extract, of high quality, and close to European markets.

After years of punishing sanctions, Libya has been left with a decayed infrastructure, and is desperate for investment, with growth running at only 3% and unemployment estimated at nearly 30%.

But it is also now in a position to trade one country off another, as other nations, such as Germany, are set to move in.