Libya declared yesterday that it bore no responsibility for either the murder of WPC Yvonne Fletcher or the Lockerbie bombing.
In an extraordinary u-turn after strenuous efforts at reconciliation with Britain and the United States, the Prime Minister, Shukri Ghanem, said Libya had agreed to pay millions of pounds in damages for the incidents merely to "buy peace" with the two countries.
His remarks prompted anger and disbelief among the relatives of Lockerbie victims and from the Fletcher family. Dr Ghanem insisted that there was no evidence that the shot which killed WPC Fletcher in 1984 had come from the Libyan embassy in London. The killing led to an armed police siege of the building and the ending of diplomatic relations.
In 1999, Colonel Gaddafi's regime had accepted "general responsibility" for the murder and agreed to pay compensation to the policewoman's family. But Dr Ghanem was adamant yesterday that a Libyan lawyer who had studied the case had concluded there was no evidence that the fatal shot had come from the embassy in St James's Square. He added: "There is no reason to oppose that view because I think it is an educated view from a lawyer who followed the case. So I will go along with what the lawyer says."
The Libyan government had paid compensation of around £2.2m for each of the 270 people killed in the Lockerbie bombing. Dr Ghanem maintained the money was paid to lift damaging sanctions and was not an admission of responsibility.
"We thought it was easier for us to buy peace and this is why we agreed to the compensation," he told BBC Radio 4's Today programme.
"Therefore we said: 'Let us buy peace, let us put the whole case behind us and let us look forward.'"
The unexpected move came on the day that the White House said that President George Bush planned to lift travel restrictions on Libya and to authorise other steps to normalise relations. Dr Ghanem's statements will also be an embarrassing setback for Tony Blair, who has led the highly publicised reconciliation moves between Libya and the West.
Two weeks ago, Mr Blair welcomed the Libyan Foreign Minister, Mohammed Abdulrahman Shalgam, to Downing Street. He is due to visit Col Gadaffi later this year in a further sign of a thaw in relations.
Jack Straw, the Foreign Secretary, said after his talks with Mr Shalgam that Britain and Libya had agreed to step up cooperation on unresolved issues over the murder.
Downing Street yesterday said Mr Blair's visit to Libya could still take place. The Prime Minister's official spokesman said "We will want to clarify what the Prime Minister of Libya said with the Libyan authorities. There does seem to be some disparity because if you look at the letter the Libyan government sent to the president of the United Nations Security Council about Lockerbie, paragraph three says Libya accepts responsibility for the actions of its officials."
Asked if Mr Blair still intended to visit Tripoli, the spokesman replied: "Clearly we will want to clarify these remarks."
Glen Smyth, chairman of the Metropolitan Police Federation, said: "If they are denying it, it is absolute garbage. They did a fingertip search of the embassy, they knew exactly from where the weapon was fired and they have a pretty damn good idea who was responsible.
"This is the nation that engaged in mass murder that is now saying it didn't do what everyone knows it did and how on earth can we normalise relations with a state like that?"