U.S. and Libyan officials are working toward opening an American Embassy in Tripoli (search) and ending Libya's designation as a terrorist-sponsoring country, Sen. Richard Lugar said Saturday.

Speaking at the end of a two-day visit to Libya, the chairman of the Senate Foreign Relations Committee (search) said U.S.-Libyan officials were taking steps to make sure that Libya was no longer involved in terrorism with the aim of removing the country from the State Department's list of countries supporting terrorism.

Lugar, R-Ind., said he had spoken with Libyan leader Moammar Kaddafi (search) and raised issues of terrorism, human rights in Libya, and economic cooperation with the country that the world used to regard as a rogue state. Lugar said he could not predict when the United States would reopen an embassy in Tripoli, but that he had talked with Libyans about working toward that goal.

In June 2004, the United States opened a liaison office in Tripoli, 24 years after Washington closed its embassy in Libya. Last year, the United States took steps toward normalizing trade and investment with Libya, allowing the import of Libyan oil.

The moves followed Gadhafi's decision in 2003 to pay compensation for the bombing of a Pan Am airliner over Lockerbie, Scotland, in 1988 which killed 270 people. The same year Libya agreed to dismantle its programs for weapons of mass destruction and allow U.N., American and British inspectors to visit the facilities.

Libya wants Washington to abolish U.S. sanctions, in place since 1986, that are estimated to have cost the country more than $30 billion in lost business. The removal of the sanctions is expected to accelerate U.S. investment in Libya's oil industry, the country's main source of revenue.