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Article published on the 2008-08-14 Latest update 2008-08-14 13:42 TU
The agreement paves the way towards a total normalisation of diplomatic relations with Libya.
"This agreement signed today is designed to resolve the last major historical issue that has stood in the way of a more normal relationship between our two countries," said US Assistant Secretary of State for Near Eastern Affairs David Welch.
He was on hand with Libyan Deputy Foreign Minister Ahmad Fituri in Tripoli to sign the agreement.
While the US announced the normalisation of ties in 2006, the appointment of a US ambassador to Tripoli and approval for funds for a new embassy have been held up in the Senate.
Congress has passed a bill that grants Libya immunity from lawsuits once compensation has been paid through the fund.