VALLETTA, Malta — The recent signing in Tripoli of "a comprehensive claims settlement" between the United States and Libya marks a new beginning not only in U.S.-Libya relations, but between Libya and the rest of the world.

The agreement provides a process for compensating the victims of attacks ranging from the 1988 bombing of Pan Am Flight 103 over Lockerbie, Scotland, to the U.S. airstrikes on Tripoli and Benghazi in 1986. It thus removes a final hurdle to Libya establishing normal diplomatic and economic ties with the West and opened the way for Secretary of State Condoleezza Rice's visit to Tripoli on Friday.

The Joint Statement, while clinically welcoming the agreement, states that both parties "thereby turn their focus to the future of their bilateral relationship," underscoring "the benefits that an expansion of ties would provide for both countries as well as for the American and Libyan peoples."

This is a far cry from recent years, when staying at a Libyan-owned hotel would make American citizens subject to a U.S. felony charge!

Clearly, the way is now open for U.S.-Libya relations to move forward in the same way that the release of a group of Bulgarian nurses, who were jailed in Libya on charges of deliberately infecting Libyan children with AIDS, unblocked European Union-Libya relations. Indeed, Libya has also just strengthened its relations with the EU: Seif al-Islam Gadhafi, the son of Libya's long-serving ruler, Moammar Gadhafi, recently declared that soon the two sides should be able to sign an "Association" agreement, giving Libyan goods access to European markets.

In his effort to restore seemingly irreparably damaged relations with the West, Gadhafi has played the oil and gas cards that he holds extremely well. Indeed, the West's hunger for energy brought invitations for Libya's leader to visit France, Spain and Portugal within the past year.

This opening is welcome, because Libya remains heavily engaged with the other countries of the Sahel, and across Africa in general, as well as with Arab states. A more development-minded Libya could help dampen tensions in these vital regions. Indeed, Gadhafi's emphatic call for Libya to embrace the market economy could have a sort of revolutionary domino effect among North Africa's "dirigiste" economies, improving the chances for a revitalization of plans to open and integrate the Maghreb Union economies.

Libya's newfound engagement with the U.S. and the EU represents not only a major shift in its international policies and diplomatic posture, but also a major internal reorientation, because the country now wants to develop an economy that is not exclusively based on oil. Indeed, like so many postcommunist countries over the past 20 years, Libya is now making the gradual and at times painful transition to a market economy.

Given that Islamic fundamentalism breeds in economic despair, Libya's rulers seem to want to take particular care that this process does not create an underclass of victims who might fall prey to the call of religious fanatics.

Of course, it is unrealistic and naive to expect that the changes now under way in Libya will result in a rapid transition to European-style democracy. Libyan politics will undoubtedly continue to be based on Gadhafi's "Green Book" and "people power," as expressed in its People's Congress. But Gadhafi now seems to want to reconcile his teachings and rule with a more open economy, including foreign direct investment and market-based competition.

Internally, Libya has launched a "Go East" policy so that development does not become clustered only in its oil and gas regions and around the capital of Tripoli. It wants, in particular, to ensure that the people and tribes in its Eastern "Cyrenaica" territories centered in Benghazi have a chance to develop equally with the rest of the country.

A bulwark of secular government and antifundamentalism in a North Africa that is struggling to contain the spread of Islamic extremism, Libya is of strategic importance to Europe and the U.S. beyond its oil riches, notwithstanding the overwhelming significance of its energy resources. Fully aware of its growing importance in an oil-starved world, Libya will use that advantage to the full and it will no doubt guard, with Gadhafi at the forefront, its sovereign rights vociferously and assiduously.

Nevertheless, drawing Libya deeper into international discourse, despite the possibility of roadblocks along the way, is a strategic decision that, now that it has been taken, the West must pursue with patience, perseverance and constant nurturing. In that process, underestimating Libyan diplomacy, shrewdness and negotiating skills is the folly of the ignorant.

Michael Frendo was Malta's foreign minister from 2004-2008, during which Malta became a member of the European Union. © 2008 Project Syndicate (www.project-syndicate.org)