Washington no longer sees evidence of Libyan links to militants and wants to remove the country from its list of terrorism sponsors as soon as possible , according to US Secretary of State Mr Colin Powell.
Removal from the blacklist would eliminate one of the final barriers to Libya's full acceptance into the international community after Washington rewarded it this year for giving up arms programmes by easing sanctions and improving ties.
Mr Powell said the United States would examine for several more months whether Libya had broken all ties with militants, but he added he wanted a plan that ultimately takes Libya off the terror list to be implemented as soon as possible.
The Bush administration has touted its headway on Libya's weapons of mass destruction as it faces election-year criticism for its failure to unearth such arms in Iraq, which it used to justify its war.
The dramatic improvement in US-Libyan relations began in August, when Tripoli took responsibility for the 1988 bombing of Pan Am Flight 103 over Lockerbie that killed all 259 people aboard and 11 people on the ground.
Inclusion on the terror blacklist bars Libya from receiving US arms exports, controls sales of items with military and civilian applications, limits US aid and requires Washington to vote against loans from international institutions.