Oct. 31 (Bloomberg) -- Libya has paid $1.5 billion into a compensation fund for terrorism victims, settling claims related to attacks including the 1988 bombing of a U.S.-bound airliner over Lockerbie, Scotland, Secretary of State Condoleezza Rice certified today.

The State Department described the payment as ``a laudable milestone in our bilateral relationship, providing a measure of justice to families of U.S. victims of terrorism and clearing the way for a continued and expanding U.S.-Libyan partnership.''

President George W. Bush issued an executive order today declaring that the claims are settled within the terms of an agreement with Libya on compensation. The decision means Libya has legal immunity from further claims. Compensation payments to families of Lockerbie victims may now be made from the fund.

``This removes the last obstacle to a normal relationship between the United States and Libya,'' Assistant Secretary David Welch, who negotiated the arrangement, told a State Department briefing today, according to a transcript. ``We will work on that now going forward.''

A statement issued on behalf of victims' families in the Lockerbie attack by Kara Weipz, whose brother was among those killed, said Libya had paid its ``final debt to terror committed long ago.''

``While our loved ones will never be forgotten, we are glad this chapter in our efforts is finally over,'' Weipz said in the e-mailed remarks.

Money for Libyans

An additional $300 million earmarked for the fund would compensate Libyan victims of a U.S. retaliatory strike on Tripoli in 1986 after the bombing of a nightclub in Berlin that was frequented by American soldiers. The U.S. has said no American taxpayer money will be used for any of the compensation.

Libya's payment may lead to the confirmation of Gene Cretz as U.S. ambassador to Libya, a step that has been blocked in Congress while the Libyan contribution was outstanding.

In early September, Rice made the highest-level official American visit to Libya in more than 50 years and conferred with Libyan leader Muammar Qaddafi in Tripoli, in a symbolic revival of relations between the countries.

A Libyan agent was convicted by a Scottish tribunal in the mid-air bombing of Pan Am flight 103 over Lockerbie, which killed 270 people. Libya formally accepted responsibility for the Lockerbie attack in 2003 and agreed to pay as much as $10 million to the families of each victim.

The convicted bomber, Abdelbaset Ali Mohmed Al Megrahi, has asked to be freed from prison, pending an appeal, the Scotsman newspaper reported today. Megrahi, who is serving a life sentence, is suffering from terminal prostate cancer, the newspaper said, and his request will be heard by a court in Edinburgh next week.

To contact the reporter on this story: Edward DeMarco in Washington at edemarco1@bloomberg.net

Last Updated: October 31, 2008 19:06 EDT