LONDON – There was a time when it looked as if America and Libya were set on a dead-end course whose destructiveness was all but self-defeating. Its nadir was President Ronald Reagan’s decision in 1986 to bomb Libya, attempting to kill Colonel Mu’ammar Qaddafi, and in the end killing his adopted daughter. Libya’s withering response was to blow up in mid air a Pan American airliner over Lockerbie, Scotland, for which crime a Libyan intelligence agent was found guilty in a special court four months ago

Yet the two countries have managed, very slowly, to repair their antagonistic and fruitless relationship. Outsiders may consider that they have taken an unnecessarily tortuous road to get there but, nevertheless, where they are today is a different place than a decade ago. This is an achievement worthy of note. War, always a possibility, was avoided. Yet still the antagonism lingers, on both sides. Only this week rancour raised its ugly head once more when it became apparent that Wintershall, a German oil company was seeking permission from Libya to drill in oil fields that formerly belonged to American companies whose operations have been frozen by U.S. sanctions since 1986. It has brought to a head a debate that was anyway due to erupt in August when the U.S. Congress is scheduled to discuss whether to renew the Iran-Libya Sanctions Act, which imposes severe penalties on foreign companies that invest in those countries.

Why is the U.S. holding out on sanctions? After the successful conclusion of the Lockerbie trial UN sanctions were lifted without opposition from Washington. There is reason enough for the U.S. to call it a day and, whilst Qaddafi’s Libya remains a rather unpleasant place, the regime has changed almost beyond recognition in the last three years. For the future, engagement would be a better tool of persuasion than further punitive sanctions and ostracism. Yet Washington has a problem, a perennial and serious one. It is not very good at deciding a future strategy when it has had a success. Having defeated the Soviet Union and European communism it wasn’t able to come up with an effective plan for mutual nuclear disarmament. Having persuaded North Korea to halt its nuclear weapons development it has prevaricated about the two Koreas’ desire to engage in reconciliation. Having had, in President Bill Clinton’s own judgement, more effect with the UN Iraq disarmament commission than it did with the whole course of the Gulf War in disarming Iraq of its potential weapons of mass destruction, it wasn’t able to call it a day and re-engage with Saddam Hussein to build a more open and positive relationship.

With Libya the same reflexes are at work. After decades of militancy Libya now appears to be accommodating itself to international norms. But Washington continues to behave as if nothing much has changed. The U.S. is fighting yesterday’s battle, when Qaddafi, flush with oil money and the energy of revolution, believed he had a call from God to undermine the West, destroy Israel and subvert black Africa to the south. Protected by the Soviet Union, hailed in many parts of the Third World, most importantly on the Arab street, he was able to write checques and ship guns to liberation movements, secessionists and terrorists from the Philippines to Argentina. But the blowing up of an American airliner was one step too far and it coincided with the days of change in the Soviet Union. Qaddafi was not Gorbachev’s cup of tea and Russia made no attempt to help when Libya was hung out to dry.

The sanctions have taken their toll. The World Bank reckons Libya has lost a good $18 billion in oil revenue. Qaddafi found to his cost that not even the lure of oil could tempt major countries to break the embargo. Splits within the ruling circle became apparent and hard liners found themselves purged. Shortly after Qaddafi accepted the UN demand for a trial of the Lockerbie suspects he announced, “the world has changed radically and drastically. The methods and ideas should change, and being a revolutionary and a progressive man, I have to follow this movement”. In September last year he made a speech proclaiming an end to his long-standing anti-imperialist struggle.

According to Ray Takeyh, writing in the current issue of Foreign Affairs, there are three outstanding issues that the U.S. says make rapprochement still impossible. They are Libya’s support for terrorism, its attempts to acquire weapons of mass destruction and its opposition to the Arab-Israeli peace process. But, as Mr Takeyh argues, Washington overstates the dividing issues. Libya’s support of terrorists is now dead in the water. There is no chance Libya could develop a nuclear weapon and its development of chemical weapons is not highly sophisticated. As for Israel, Libya no longer rushes arms and aid to Palestinian militants.

U.S. policy needs to change from stick to carrot. Europe already has changed step, perhaps too quickly without waiting for Qaddafi to compensate the families of those who died on board the crashed airliner. Still this is the time to make a deal: sanctions should be allowed to lapse in August if compensation is paid and the U.S. would then encourage the U.S. oil industry to return in strength. The struggle would not end there. Libya needs to be induced to sign the treaty outlawing chemical weapons. The outside world needs to make sure that Libya doesn’t spend its new oil revenues on arms purchases. But this is politics as normal and the U.S. working with Europe is powerful enough to offer plenty of incentives. Rogues can be rehabilitated. It just needs a measure of courage and perception to know when the time is right.