President Bush has nominated veteran diplomat Gene Cretz to become the first U.S. ambassador to Libya in nearly 35 years. The State Department says the move does not mean diminished U.S. interest in resolving lingering problem issues with the government of Libyan leader Muammar Gaddhafi. VOA's David Gollust reports from the State Department.

Gene Cretz (2004 file photo)

The nomination of Cretz, currently the deputy U.S. chief of mission in Israel, was announced Wednesday in a little-noticed press announcement from the White House.

But the decision marks a major upgrade in the once-hostile relationship that began to improve in 2003 with Libya's decision to renounce weapons of mass destruction.

Muammar Gaddhafi, 2 July 2007

The last U.S. ambassador to Libya left in 1972, after Mr. Gaddafi took power and diplomatic ties were broken in 1981. The situation went farther downhill later, with the Gaddhafi government listed by Washington as a state sponsor of terrorism and targeted by U.S air strikes in 1986.

Seeking to restore its international standing, Libya in 2003 accepted responsibility for the 1988 bombing of a U.S. Pan Am jetliner and later agreed to compensate the families of the 270 people killed in the attack, most of them Americans.

But not all of the nearly $3 billion in promised reparations have been paid and there are other problems in relations with Washington, including the case of five Bulgarian nurses and a Palestinian doctor accused of deliberately infecting more than 400 Libyan children with the HIV/AIDS virus.

In a talk with reporters, State Department spokesman Sean McCormack defended the decision to upgrade the U.S. embassy in Tripoli as the "right thing to do" in light of good-faith actions by the Libyans. But he said it does not in any way diminish U.S. interest in seeing the remaining problem issues resolved.

"It is an indication that the relationship between the United States and Libya has changed dramatically over the past several years, and for good reason," said McCormack. "You have seen good faith met in turn by good faith. So it is one more step in that process. It is not the end, and we would expect the Libyan government to come forward and resolve all of those issues that are outstanding."

Officials here said the ambassadorial move followed delivery of a letter from President Bush to the Libyan leader thanking him for scrapping the weapons programs, but also stressing the need to settle outstanding issues. Mr. Bush said in Bulgaria last month that winning the release of the jailed medics, who maintain their innocence, is a high priority for the United States.

Libyan security guards stand in front of the dock during the trial of five Bulgarian nurses and a Palestinian doctor, in Tripoli, 04 Nov 2006

On Wednesday Libya's Supreme Court upheld death sentences against the six prisoners.

But spokesman McCormack noted an announcement this week that a foundation run by a son of the Libyan leader has prepared an international compensation plan for the affected Libyan children and families, and he said the United States remains hopeful the medics will be freed.

"The resolution with the Gaddafi Foundation of some of the outstanding issues is a positive step, but not sufficient," he said. "We understand that there is going to be an appeals process that is under way that is headed by the minister of justice, and we very much hope that the result of that appeals process is to see these nurses and medics returned home."

Several U.S. senators are pressing the Bush administration to demand action by Libya on remaining compensation for the Pan Am bombing, and for an accounting of a 1986 disco bombing in Berlin that killed two U.S. servicemen and is also blamed on Libya.

McCormack said putting an ambassador in Tripoli does not reduce U.S. leverage with the Libyan government, and he suggested that even with a full ambassador on station, the political relationship will be "minimal" until remaining issues are settled.