The administration also encouraged Libya to establish an official presence in Washington by opening an "interests section," a diplomatic office a level beneath an embassy. The United States also will expand its diplomatic presence in Tripoli.

The White House announcement rescinded travel restrictions that have been in place for 23 years against Libya, a country which the United States had long branded a sponsor of state terrorism.

Allowing U.S. travel to Libya would give American corporations an opportunity to do lucrative business legally in Libya's rich oil fields. It also would help Gadhafi emerge from semi-isolation.

US firms which had holdings in Libya before sanctions were imposed were authorized to negotiate the terms of renewing their operations, the White House said. However, the companies will be required to obtain U.S. approval of any agreement, if economic sanctions remain in place.

The White House said it would "continuously evaluate the range of bilateral sanctions that remain in place relating to Libya" as its government moves toward totally dismantling its weapons of mass destruction programs and related missiles projects and adheres to its renunciation of terrorism.

The lifting of the travel ban came after the Jamahiriya news agency disavowed assertions by the Libyan prime minister that Libya had not acknowledged it blew the jetliner out of the skies over Lockerbie, Scotland in 1988, killing 270 people, including 181 Americans.

The United States has been moving toward improved relations with Tripoli since Gadhafi renounced the development of weapons of mass destruction and allowed weapons inspectors to verify that his country was abandoning nuclear, chemical and biological programs.

"While more remains to be done, Libya's actions have been serious, credible and consistent with Col. Gadhafi's public declaration that Libya seeks to play a role in 'building a new world free from (weapons of mass destruction) and from all forms of terrorism'," a White House statement said.