Bush reluctant to approve Libya offer to pay $10m for each Lockerbie victim

Officials from Britain, Libya and the United States are to meet in London next week to try to hammer out a compensation deal for the Lockerbie bombing amid signs that America is unwilling to lift its economic sanctions on Tripoli.

Libya has made a formal offer of $2.7bn (£1.8bn) for the 1988 bombing that destroyed Pan Am Flight 103 over Scotland. The deal would mean the families of the 270 people who died would each receive $10m.

But it is becoming clear that the US will object to the conditions Libya has attached. Tripoli has said it will make the payments in three stages, with the full amount being paid only when UN and US sanctions have been lifted and the State Department had taken Libya off the list of countries that it claims sponsor terrorism.

The US Secretary of State, Colin Powell, said: "We are waiting to see what the actual Libyan offer is. It's not yet formally put on the table and we'll examine it when we see all of its elements. Just reading press accounts of what has been said about the offer, it certainly is a step in the right direction, but I don't think it resolves the entire issue, resolves all of the outstanding issues that have to be dealt with, with respect to Libya and Pan Am 103."

State Department sources said yesterday that it was unlikely that the Bush administration would approve the deal, first revealed on Tuesday.

Next Thursday's meeting will take place at the Foreign and Commonwealth Office (FCO) and is likely to involve William Burns, a US Assistant Secretary of State; Libya's ambassador to London, Mohammed Abdul Qasim al-Zwai, and a Foreign Office official.

"The meeting will focus on the requirements of the UN resolution in regard to Libya," FCO spokesman said. The negotiations are complicated by the fact that the financial element is being discussed separately, in talks led by the law firm representing the families of those who died in a civil compensation claim. "I have recommended to the families that they accept the offer," said Jim Kreindler, of the law firm.

The financial deal relates to a UN Security Council resolution demanding that Libya not only pay "appropriate compensation" but accept general responsibility for the bombing, renounce terrorism and comply with any future inquiry.

If these demands were met, the suspended UN sanctions imposed in 1992 would be scrapped. The US has its own separate trade sanctions imposed in 1986. Libya desperately wants the sanctions to be lifted so that it can sell oil.

But while negotiators accept that the offer would already have been approved by Libya's leader, Colonel Muammar Gaddafi, the Foreign Minister, Abdel-Rahman Shalqam, said yesterday that his country had not made an offer.

"We do not mind contact with America on any level to reach an understanding on a compatible and objective basis," he said. "But we reject extortion, and scaring tactics in any shape or form."