"We are taking these actions in recognition of Libya's continued commitment to its renunciation of terrorism and the excellent cooperation Libya has provided to the United States and other members of the international community in response to common global threats faced by the civilized world since Sept. 11, 2001," Secretary of State Condoleezza Rice announced in a statement.
Rice used the occasion to express hope for the current U.S. standoffs over the development of nuclear weapons with North Korea and Iran.
The United States has not had formal diplomat relations with Libya since 1980, although a thaw in long-standing hostility enabled Washington to open a diplomatic office in Tripoli, Libya in 2004.
The move comes just three years after Libyan leader Col. Moammar Qaddafi surprised the world by agreeing to dismantle his country's weapons of mass destruction programs and cooperate fully with international investigations.
American officials say that the records gleamed from Libya were crucial in tracking the illegal proliferation network run by Pakistan's top nuclear scientist, A.Q. Khan.
"As a direct result of those decisions we have witnessed the beginning of that country's re-emergence into the mainstream of the international community. Today marks the opening of a new era in U.S.-Libya relations that will benefit Americans and Libyans alike," Rice said.
Libyan Foreign Minister Abdurrahman Shalgham told the Associated Press the move was not a surprise.
"It was a result of contacts and negotiations. It is not unilateral. It is a result of mutual interests, agreements and understandings," he said
There has not been a U.S. ambassador in Libya since 1974, three years after Qaddafi seized power in a coup. Qaddafi publicly supported international terrorism and subversion against African and Arab governments, according to State Department records. The U.S. Embassy was withdrawn in 1979 after a mob set fire to it.
Libya was placed under U.N. sanctions after it was held responsible for the bombing of Pan Am 103 over Lockerbie in 1988, which claimed 270 lives, most of them American.
Libya has been making concessions since 1994 when authorities agreed to take some responsibility for the bombing and reached a compensation agreement with the families of the victims.
Since the Sept. 11, 2001 attacks, which were denounced by Qaddafi, the Bush administration has praised Libya's cooperation in fighting terrorism.
