Libyan leader Muammar Gaddafi said on Sunday a deal had been struck to increase compensation for a 1989 French airliner bombing, allowing Libya to close the Lockerbie case and repair relations with the West.

A compensation dispute erupted after Britain acted to end U.N. sanctions on Libya when Tripoli agreed this month to pay $2.7 billion to families of 270 people killed in a 1988 bombing of a Pan Am airliner over the Scottish town of Lockerbie.

But France, a veto-wielding member of the U.N. Security Council, threatened to block the move unless Tripoli increased compensation to relatives of 170 people killed when a UTA airliner was blown up over the African state of Niger in 1989.

"The problem over the UTA case is over and the Lockerbie case is now behind us. We are opening a new page in our relations with the West," said Gaddafi, addressing his nation on the anniversary of a coup that brought him to power in 1969.

Though Libya has never admitted responsibility, it paid $34 million to France after a Paris court convicted six Libyans in absentia for the killings.

Gaddafi repeated Libya had no role in the Pan Am or UTA bombings. He said Libya was blamed for both due to disputes with the United States and France in the 1970s and 1980s.

An agreement would open the way for Britain to introduce a twice-delayed motion to end U.N. sanctions imposed over the Lockerbie bombing. London has said it aimed to do so this week.

Britain had held off submitting the resolution to avoid another embarrassing split with France in the U.N. Security Council after bitter differences over the Iraq war.

EXHAUSTING NEGOTIATIONS

"The deal is done, the terms will be announced tomorrow," said Saad Djebbar, a London-based lawyer who advised Libya over the Lockerbie case.

Francoise Rudetzki, head of a victims' support group that visited Libya at the weekend, said: "We have reached an agreement in principle, but the details have not yet been worked out.

"(Gaddafi's speech) is an undertaking before the entire world which means that we should be able to reach a fair solution shortly," Rudetzki said.

A source familiar with the Libyan position told Reuters on Saturday Tripoli had offered around $300,000 per family.

That would be a significant increase on the original payout, but still less than the families had been seeking.

Djebbar had told Reuters on Saturday Libya would be ready to increase the sum if French President Jacques Chirac called Gaddafi and pledged France would back, or at least not block, an end to U.N. sanctions.

The French Foreign Ministry said Chirac had spoken to Gaddafi on Sunday -- the second time in eight days.

"Chirac telephoned me asking for a solution for the problem over the compensation saying he is embarrassed by the families of the victims who asked why the French victims got less money than the Americans (in the Lockerbie case)," said Gaddafi.

"I understand the position of the French president who asked for a human and friendly solution," he said.

Relatives of the French victims flew to Libya for a weekend of hectic negotiations with the Libyan authorities

A spokesman for the families, Guillaume Denoix de Saint Marc, said on his return to Paris: "We have spent a sleepless night and the entire day negotiating."

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