The Bush administration said Friday it will go ahead with plans to establish normal diplomatic relations with Libya despite pressure to slow the process from families of Americans killed in the Pan Am 103 airliner bombing.

The United States will remove Libya from its list of nations that sponsor terrorism next week, following a congressionally required comment period, said Assistant Secretary of State David Welch. He said he will go to Tripoli, the Libyan capital, next month.

"Libya has put its terrorist past behind it," and the Bush administration sees no reason to delay, Welch said.

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A House committee went on record Tuesday against any normalization of U.S. relations with Libya until Tripoli pays all compensation due to families of people killed in the 1988 Pan Am bombing over Lockerbie, Scotland. Libya was held responsible for the bombing of Pan Am flight 103, which claimed 270 lives, most of them American.

"I was very disappointed," said Ali Aujali, chief of Libya's diplomatic office in Washington. "We thought the issue of Lockerbie was over."

Aujali and Welch spoke at a conference organized by the U.S.-Libya Business Association, a trade group for oil firms and others eager for greater freedom to do business in Libya, and the nonpartisan Middle East Institute.

The U.S. and Libyan diplomats agreed the diplomatic steps announced in May by Secretary of State Condoleezza Rice should go ahead on schedule.

However, they disagreed over how to resolve a long-running dispute over the fate of five Bulgarian nurses and a Palestinian doctor charged with infecting Libyan children with HIV.

Welch said the jailed medics should be freed and allowed to go home.

"I'm sorry to say we cannot do that," Aujali said. "You have to respect our legal system. This is the democracy you are calling for."

Libya is now holding a retrial for the six, who are accused of infecting more than 400 children with HIV, the virus that causes AIDS, at a hospital in the Libyan city of Benghazi.

By taking Libya off the terrorism sponsorship list, the Bush administration clears the way for broader economic ties with the oil-producing nation during a period of record-high gasoline prices in the United States.

The U.S. has not had formal diplomatic relations with Libya since 1980.

President Reagan ordered air attacks against Libya in 1981 and 1986, and the relationship hit its nadir following the Lockerbie bombing.

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Libyan leader Moammar Qadaffi surprised the world in late 2003 when he swore off terrorism and announced plans to dismantle his country's weapons of mass destruction programs. Libya was eager to end the international isolation and economic hardships from United Nations and U.S. sanctions in the Pan Am case, and Gadhafi concluded the weapons programs were best used as a bargaining chip.

The diplomatic thaw began almost immediately, with the opening of a small U.S. diplomatic office in Libya in 2004.

Families of victims say they are still owed $2 million apiece as part of a settlement that Libya made with the United States as the northern African nation sought to shed its pariah status. The families have already received $8 million each.

Aujali noted that the final payments were hinged to a deadline for removing Libya from the terror list that is now past.

Rep. John Sweeney, R-N.Y., added language to a 2007 spending bill to prevent the United States from funding any restoration of diplomatic relations with Libya until Libya pays the remaining money.

The Senate approved such a resolution earlier this month.