Libya offers $2.7bn to Lockerbie families

The Libyan government has promised to pay $10m (£6.9) compensation to each of the 270 families bereaved in the Lockerbie bombing, a law firm representing many of the relatives revealed last night.

The offer, which totals $2.7bn, still has to be approved by the families, and Libya's announcement that it would link the payout to the lifting of both United Nations and US sanctions against it made further diplomatic wrangles a certainty. "These are uncharted waters," Jim Kreindler, a lawyer for the victims' families, said in a statement.

Nevertheless, "it is the first time that any of the states designated as sponsors of terrorism have offered compensation to families of terror victims", he said.

A letter sent to relatives from Mr Kreindler's New York law firm read: "We are pleased to inform you that after 10 months of difficult and intricate negotiations in New York, London and Paris we have finally obtained a settlement offer from Libya that we recommend to you."

Libya's deal, if accepted, would settle a lawsuit brought in 1996 by 118 American relatives that has been conducted in secret and without US government involvement. American legal rules prevent the British relatives from participating in such lawsuits, although the offer encompasses them too.

The explosion of Pan Am flight 103 in 1988 killed 259 passengers and crew members, 181 of whom were American, as well as 11 residents of the Scottish village. Abdel Basset Ali al-Megrahi, a Libyan intelligence agent, was convicted of the crime last year by a Scottish court sitting in the Netherlands. He was sentenced to life in prison.

A satisfactory compensation offer is one of the conditions that the UN has demanded that Libya meet before it lifts international sanctions against the country. But a senior US official, speaking on the condition of anonymity, told the Associated Press that Libya would also tie the release of funds to the lifting of separate sanctions imposed by America.

The official said the Bush administration would not consider itself bound by any such deal and Congress would reject it. The US would not commit to removing its own sanctions, he said, unless Libya complied fully with the UN Security Council's demands, which include admitting responsibility for the crime, revealing all it knows about it, and renouncing future terrorism.