WASHINGTON — The Bush administration restored full diplomatic ties with Libya on Monday, rewarding a longtime foe for giving up terrorism and unconventional weapons, and tacitly encouraging Iran and other countries to follow suit.
Completing a reversal that began three years ago, administration officials said they would open an embassy in Tripoli and drop Libya from their list of nations that sponsor terrorism. David Welch, assistant secretary of State for the Middle East, said the announcement demonstrated that when countries "follow international norms, they will reap concrete benefits."
"Libya serves as an important model as we push for changes in policy by other countries, such as Iran and North Korea," Welch said.
U.S. officials hope the move will encourage Libya to further open its economy, including its underdeveloped oil industry, which is potentially one of the world's largest. Libya's oil reserves rank in the top 10 worldwide, but its production lags. After the administration lifted U.S. economic sanctions in 2004, American oil companies joined others doing business in Libya, and Libyan oil began arriving at U.S. refineries that year.
At a morning news conference, Welch denied that the move was driven by an interest in oil, but acknowledged that Libya's economy has not opened to Americans as much as hoped for since economic sanctions were lifted.
Libya "remains a problematic place to do business," he said. "We would appreciate greater openness, as would any number of potential foreign partners."
U.S. officials said the Libyan economy has many traditional rules -- common to the region -- that make it hard for foreigners to trade and invest. State Department travel warnings note that credit cards and checks tied to U.S. banks are usually not accepted in Libya, which remains mostly a cash economy. Officials said they hoped that better ties would give momentum to modernization and lead to an opening of the economy.
After Monday's announcement, analysts speculated that the Bush administration was eager to publicize the restoration of relations with Libya as a success story that showed, at a time of foreign policy frustrations in Iraq, Iran and elsewhere, that the United States can carry off diplomacy in the Middle East.
"The Bush administration has been looking for ways to show they can walk and chew gum, and solve problems in a sophisticated way, without resorting to bombing," said David Mack, a former senior State Department official who is now a vice president at the Middle East Institute in Washington.
