New hurdles hamper Libya's rehabilitation: Libya's president, Colonel Muammar Gaddafi, was a global pariah when Saddam Hussein was still the West's best friend. But how times change. Between Saddam Hussein being captured, tried and hanged, the Libyan president had remodelled himself and his country to emerge as shining examples of total rehabilitation in the eyes of the world.

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IT IS NOT quite 20 years since Pan Am flight 103 exploded over the Scottish town of Lockerbie, killing 270 people on board and on the ground. Libya has since been linked with the atrocity--its full role still not fully established in a case that is, even after all this time, ongoing--and its status as a sponsor of international terrorism earned it a place on Washington's list of persona non grata states. All economic and political ties with the West were severed and sanctions put in place.

So what has changed? In 2003, Gaddafi announced an end to his country's nuclear weapons programme and invited inspectors into Libya. George Bush and Tony Blair were quick to grab the glory, claiming Colonel Gaddafi would never have opened his country up in such a way had it not been for their actions in invading Iraq and deposing its leader. They largely overlooked the remarkable contribution of Nelson Mandela and his negotiators, whose reputation --agreeable to all sides--brokered, against the odds, a deal that satisfied Libya, the US and Britain and marked the beginning of Libya's reintroduction into the international community.

In the next few years, sanctions were lifted, political ties re-established, and the business world began to court the North African country for its vast reserves of oil and gas. But have all past sins been absolved? Those with hundreds of millions of dollars to make would certainly like to think so, but not everyone is so willing. In January of this year, the US Congress passed a law which meant victims of state-sponsored terrorism would be able to claim compensation. This would be achieved by the seizing of assets held by the guilty state in the US, or even money made from deals with those states that are held by American-based companies.

And while the Libyan government has now denounced terrorism, it has been linked with a number of terrorist acts against US citizens, including the bombing of Pan Am flight 103. Victims of some of those acts are still waiting for the outcome of court cases, which, if the courts find against Libya, could cost that country several billions of dollars; and the new law has made it easier for them to claim what they are owed.

Already, more than a dozen US companies have had suits filed against them.

This has made it very difficult for American companies to do business with Libya, and the concern is that other companies, based in other countries, will take advantage and gain a foothold in North Africa ahead of them. As a result, members of President Bush's cabinet, among them Secretary of State Condoleezza Rice and Defence Secretary Robert Gates, have written to Congress to ask that Libya be made exempt from the law.

Backed by some very rich and powerful representatives of the oil companies, the Libyan government has acquired the services of an influential lobby group to argue their case on their behalf.

Senator Frank Lautenberg, who was behind the provision for the claiming of assets, is determined not to give in to the pressure. Already, he has been willing to concede that Iraq should be made exempt, as any multibillion dollar compensation claim would further hinder an already rocky road to recovery. But on the issue of Libya he is standing firm.

"This new law achieves my goal of providing justice for American victims of terrorism at the hands of terrorist states like Iran and Libya. I will not rest until all American victims of terrorism get the justice they deserve," he said when the bill was first passed.

This is a tightrope for the Bush administration; while it wants to be seen as uncompromising on the purveyors of terrorism and unwavering in its support for US victims of terrorist attacks, it appears reluctant to follow through at the risk of damage to the long-term financial interests of the United States and US-based companies. This stance is entirely at odds with Washington's more vocal and aggressive attitude toward Iran.

The current impasse is holding up US-Libyan relations, but other countries are almost unseemly in their haste to snatch the initiative. Hundreds of European companies had lined up to secure deals even before the sanctions were lifted.

The years of crippling sanctions have left Libya with an aged infrastructure and the opportunity to make money from development alone makes the country extremely attractive to overseas investors keen to climb on board before the ladder is drawn up. Chief among those opportunities is the development of Libya's oil and gas reserves, which British oil giant, Shell, wasted no time in staking a claim on. Also among the early runners for a share of the new market was British defence and aerospace company, BAE.

There are continuing concerns that the rush to agree lucrative contracts may encourage western governments and businesses to overlook aspects of Libya's human rights record that many still have anxieties about.

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Human Rights Watch says the country's rehabilitation has led to some improvement in the situation there, but notes that freedom of expression and political opposition are still severely curtailed and that political prisoners are still being detained. Indeed, being involved in a group or activity that opposes the ideology set in the revolution of 1969--which saw Colonel Gaddafi seize power--is still punishable by death.

In exchange for contracts, the US and British governments have added to their list of terrorist groups some of those who are opposed to the current Libyan regime.

Females who are found guilty of transgressing moral codes or are simply rejected by their families are kept in detention, ostensibly for their own protection and 'rehabilitation', but none of their basic human rights, such as the right to privacy, the right to due process, and the freedom of movement are honoured.

Promises of reform have been made but are slow in coming. But with Colonel Gaddafi's sometimes startling willingness to co-operate and agree concessions, there is a great deal of hope for the future. However, calls for multi-party elections have fallen on deaf ears.

Another opportunity for investment is the barely existent tourist industry. Hoping to take advantage of the thousands of miles of Mediterranean coastline and archaeological wonders, billions of dollars worth of investment is just waiting to be spent, with deals for hotels, golf courses and resorts being negotiated. But the lack of a legal framework is a concern for anyone wishing to put their money into Libya. Until one is put in place, many will be reluctant to risk their investment.

However, Libya's new, friendly relations with the US, in particular, has a down side. Many young Libyans are unhappy with their government's abandonment of its nuclear weapons programme and see the 2003 declaration as a capitulation to those they consider to be their enemies. As a result, figures reveal that an increasing percentage of insurgents in Iraq are of Libyan origin.

Ayman Al Zawahri, Al Qaeda's second most senior leader, has declared Colonel Gaddafi an 'enemy of Islam', and has called on the people of North Africa to overthrow their leaders.

Despite the obvious cause for concern this represents, the very fact that such groups are obliged to leave their homes and seek refuge in Iraq is revealing of a tide that is turning against those who would take up arms for their cause.

More significant for the future, is the stark contrast between the outcome of war in Iraq and the peaceful changes that are now taking place in Libya. Whilst the standoff between Tehran and Washington continues, the first signs of a shift in Iran from the extreme, hardline policies of the president to the more moderate, open proposals of those who are gaining political influence, indicate that patience will win the day.

But whichever way you look at it, coercion--whether peaceful or violent--is coercion nonetheless. And although the changes that are taking place can only be described as positive, if those changes are seen to be forced, the resentment of those who remain disaffected will continue to simmer. And if foreign oil companies and investors profit, while ordinary Libyans are left behind, the opportunity for Colonel Gaddafi's change of heart to take hold may be lost.