In a landmark meeting, Secretary of State Colin Powell (search) told Libya's foreign minister Thursday the Bush administration wants to build on its growing relationship with Moammar Gadhafi's (search) once-outcast government.

But Powell told the minister, Abdurahman Shalgam, that terrorism remained a concern and that the Bush administration needed to have more information on reports that Libya may have been involved in an attempt on the life of Saudi Crown Prince Abdullah (search), said a senior State Department official who attended the meeting in Powell's hotel suite.

Also, the administration is trying to determine if Libya (search) still had links to terror groups, the official said.

As a result, there is no immediate plan to remove Libya from the State Department's list of seven countries that are branded as supporters of terrorism, said the official, who spoke on condition of anonymity.

The official said Powell also told the Libyan foreign minister the administration was concerned about the status of human rights in the North African country, controlled by Gadhafi since a coup in 1969.

Powell and his Libyan counterpart were in New York for a special session of the U.N. General Assembly.

The Bush administration views Libya's renunciation of weapons of mass destruction a major foreign policy achievement, and with serious problems in Iraq has made a point of removing the weapons threat as evidence the administration's diplomacy has had successes.

Gadhafi, eager to be seen as cooperating with the United States as a means of gaining international favor, has denounced kidnapping foreigners in Iraq as "terrorism."

Bush on Monday removed a ban on commercial air service to Libya and released $1.3 billion in frozen Libyan assets in recognition of "significant" steps to eliminate its deadliest weapons programs.

In response, Libya was expected to disburse $1 billion in compensation payments to 269 families of the victims of the 1988 Pan Am 103 bombing.

White House press secretary Scott McClellan this week credited Libya with having taken significant actions over the past nine months to eliminate its chemical, biological and nuclear weapons programs.

"Concerns over weapons of mass destruction no longer pose a barrier to the normalization of U.S.-Libyan relations," McClellan said.

Powell and Shalgam called in cameras to record their meeting, one which State Department officials said was on the highest level in decades. They could not recall the last time a U.S. secretary of state met with a senior Libyan diplomat.

Powell and Shalgam shook hands, smiled and said nothing during a brief picture-taking session, but it was clear even with nothing said publicly that their two countries were drawing closer.