In a U-turn by the two governments, the Foreign Secretary, Robin Cook, said the decision to hold the trial in a neutral country 10 years after the bombing of PanAm 103, killing all 259 on board and 11 on the ground, should be seen as a signal to other terrorists responsible for the attacks on the US embassies in East Africa that "however long it takes, they will be brought to justice".
The trial could take place by next May, but there was widespread scepticism at the highest levels of Government that Colonel Muammar Gaddafi would surrender the two suspects for trial - Abdul Basset al-Megrahi and al- Amin Khalifa Fhimah - despite repeated Libyan demands for a trial in a neutral country, such as the Netherlands.
"I cannot answer for Colonel Gaddafi. His government has said they would accept a trial by a Scottish court with Scottish judges. If they choose not to take up that offer, it will very severely undermine the credibility that they will have for making that undertaking earlier this year," said Mr Cook. He added that sanctions against Libya could be lifted the moment the two accused were handed over for trial. The terms were not negotiable. The Lord Advocate, Lord Hardie, said the two could not be tried in their absence. There will be extradition proceedings, and, if they submit themselves for trial, a full committal procedure with a trial by three Scottish judges under full Scottish law held within 110 days.
They would be held "in a special facility" in The Hague by Scottish prison officers until the trial, and if found guilty, would serve their sentence in Scotland. Lord Hardie rejected calls for an international court, with a presiding Scottish judge, "because there is no body of international criminal law and procedure under which it could operate".
The move won support from Lord Fraser of Carmyllie, Tory Lord Advocate at the time of the bombing. He said that,10 years on, "the anguish of the relatives of all those who died in the tragedy and the way that conspiracy theories have proliferated" dictated holding a trial.
Families of the victims welcomed the decision. Jim Swire whose 23-year- old daughter, Flora, died on flight 103 on 21 December 1988, was "euphoric". He said: "Anyone in their right mind would welcome this decision." Mr Swire, the spokesman for the UK Families Flight 103 group, said: "This is something that our group have been working for six years for."
Alistair Duff, Scottish lawyer for the two Libyans, said the issue of the judges was not insurmountable. But Mr Duff told BBC Radio the men would need various reassurances, such as the condition of their custody and access to lawyers before agreeing to leave Tripoli.
Until recently the British and American governments maintained that the Libyans must be handed over for trial in Britain or the United States.
The US Secretary of State, Madeleine Albright, announcing the joint proposal in Washington, called for Libya to end its "10 years of evasion". She said: "We now challenge Libya to turn promises into deeds. The suspects should be surrendered for trial promptly."
The United Nations Secretary-General, Kofi Annan, welcomed the joint initiative and offered the UN's services to arrange the transfer of the accused men to the Netherlands, if Libya agreed. Details of the proposed compromise were to be given to Tripoli by Mr Annan.
The US and Britain are expected to submit the draft of a new resolution to the UN Security Council that will envisage an end to international sanctions against Libya if it agrees to surrender the accused men for trial.