President Bush on Friday cleared the way for American companies to do business in Libya, easing Reagan-era economic sanctions as a reward to Moammar al-Qaddafi (search) for giving up weapons of mass destruction.

Libya's actions "have made our country and the world safer," the White House said.

The easing of sanctions imposed in 1986 and those imposed under a 1996 Libya sanctions law will allow a resumption of oil imports from Libya.

It also will permit American oil companies to resume commercial activities in Libya. Marathon, ConocoPhillips, Amerada Hess (search) and Occidental (search) all have assets in Libya but have been barred by the U.S. government from operating there since 1986.

Libyan assets held in the United States or by U.S. banks will remain frozen.

Bush rolled backed the sanctions as a result of Libya's decision late last year to abandon weapons of mass destruction (search).

"Through its actions, Libya has set a standard that we hope other nations will emulate in rejecting weapons of mass destruction and in working constructively with international organizations to halt the proliferation of the world's most dangerous systems," White House press secretary Scott McClellan said. "Libyan actions since December 19 have made our country and the world safer."

Gadhafi also has garnered international backing with his decision to accept responsibility for the 1988 Pan Am 103 (search) bombing. Libya has pledged $2.7 billion to compensate families of the airliner's 270 victims - $10 million per family.

The 1996 Libya sanctions law prohibited U.S. companies from investing in Iran and Libya. Sanctions also could be applied under the law to foreign companies that made investments in either country in excess of $40 million. In 2001, Congress extended the law for an additional five years. In the eight years the law has been in effect, no foreign company has been sanctioned.

Foreign firms can now feel free to carry out energy-related investment in Libya without fear of U.S. reprisal.

The main remaining sanction is Libya's presence on the U.S. list of state sponsors of terrorism. Nations on the list are barred from receiving arms-related exports or sales of U.S. origin or receiving U.S. economic assistance. The U.S. government also is barred from supporting loan requests from such countries in international lending institutions.

Citing Libya's new stand, the White House said that Qaddafi's government "has taken significant steps eliminating weapons of mass destruction programs and longer range missiles, and has reiterated its pledge to halt all support for terrorism.

"In the last two months, the government of Libya has removed virtually all elements of its declared nuclear weapons program, signed the IAEA Additional Protocol (search), joined the Chemical Weapons Convention, destroyed all of its declared unfilled chemical munitions, secured its chemical agent pending destruction under international supervision, submitted a declaration of its chemical agents to the Organization for the Prevention of Chemical Weapons, eliminated its Scud-C missile force, and undertaken to modify its Scud-B missiles," the White House said.