Libya has paid $1.5 billion into a fund to compensate the families of American victims of Libyan-linked terror attacks in the 1980s, clearing the last hurdle in full normalization of ties between Washington and Tripoli.

In exchange, under a deal worked out earlier this year, President Bush on Friday signed an executive order restoring the Libyan government's immunity from terror-related lawsuits and dismissing pending compensation cases, the White House said.

"This removes the last obstacle to a normal relationship between the United States and Libya," said David Welch, the top U.S. diplomat for the Middle East who negotiated the agreement.

State Department spokesman Sean McCormack called it "a laudable milestone" giving "a measure of justice to families of U.S. victims of terrorism and clearing the way for continued and expanding U.S.-Libyan partnership."

The money will go into a $1.8 billion fund that will pay $1.5 billion in claims for the 1988 Pan Am 103 bombing over Lockerbie, Scotland, and the 1986 bombing of a German disco. Another $300 million will go to Libyan victims of U.S. airstrikes ordered in retaliation for the disco bombing.

Payments to U.S. victims' families should start within days, Welch said. Family groups hailed the news.

"Today the government of Libya paid its final debt to terror committed long ago," said Kara Weipz, spokeswoman for the Families of the Victims of Pan Am 103 whose brother, Rick Monetti, was aboard the plane. "While our loved ones will never be forgotten, we are glad this chapter in our efforts is finally over."

Libya had sought donations from private businesses to help cover its share of the fund. The Bush administration has vowed that no American taxpayer money will be used for the U.S. portion but has not said where the money will come from.

Welch refused to discuss the source of the Libyan contribution and would not say if the $300 million for the Libyan victims had been deposited.

{startribune}