The United States and Britain have warmly welcomed Libya's decision to abandon its programmes for developing weapons of mass destruction.
Gaddafi's government negotiated with the US and UK
Libyan leader Muammar Gaddafi's statement followed nine months of secret negotiations with the West.
President George Bush said his decision set an example to other countries on how to build better relations with the US.
"Colonel Gaddafi's commitment, once fulfilled, will make our country more safe and our world more peaceful," he said.
"Leaders who abandon the pursuit of biological, chemical and nuclear weapons and the means to deliver them will find an open path to better relations with the US and other free nations."
Libya's Foreign Minister Mohammed Abderrahmane Chalgam said they had taken the decision because the weapons programme did not benefit Libya or its people.
"We want to have ties with America and Britain because this is in the interest of our people," Mr Chalgam told Al-Jazeera television.
UK Prime Minister Tony Blair called the announcement "an historic one and a courageous one".
And the British Foreign Secretary, Jack Straw, speaking on the BBC's Today programme, applauded what he called Colonel Gaddafi's "huge statesmanship and courage".
He said a team of experts which had paid visits to Libya in October and earlier this month had been given access to projects at more than 10 sites, including at least one involving uranium enrichment.
They had discovered that:
- Libya had not acquired a nuclear weapons capability, but was close to developing one.
- It had significant quantities of chemical agent and bombs designed to be filled with chemical agent.
- There were research centres with the potential to support biological weapons-related work.
- Facilities existed where missile research development work had been conducted.
Libya said in its statement that it had agreed to the immediate international monitoring of its facilities.
"Libya has decided, with its own free will, to get rid of these substances, equipment and programmes and to be free from all internationally-banned weapons.
"It will take all these measures in a transparent way that could be proved, including accepting immediate international inspections," the statement said.
Tony Blair applauded the move
Libya has promised to restrict itself to missiles with a range that comply with the standards of the Missile Technology Control Regime (MTCR) surveillance system.
This imposes a limit of 300 kilometres for missiles carrying a payload of 500 kilograms.
It has also promised to negotiate a new deal with the United Nations' nuclear agency and provide guarantees on biological weapons.
And it said it was ready to play its role in building a world free from all forms of terrorism,
"By taking this initiative, (Libya) wants all countries to follow its steps, starting with the Middle East, without any exception or double standards."
The US and its allies have long suspected that Libya had secret chemical and biological weapons programmes, but Tripoli repeatedly denied such allegations saying it only had facilities for pharmaceutical or agricultural research.
In 1995, the country reopened its Rabta pharmaceutical plant at Qabilat az Zaribah which, before its 1990 closure, had produced up to 100 tons of chemical weapons, according to the US.
But chemical weapons production at Libya's underground Tarhuna facility is thought to have been suspended following intense international scrutiny.
Mr Blair gave details of the secret negotiations in his statement on Friday.
"Libya came to us in March following successful negotiations on Lockerbie to see if it could resolve its weapons of mass destruction issue in a similarly co-operative manner."
"It demonstrates that countries can abandon programmes voluntarily and peacefully," he said.
Mr Blair contrasted Libya's voluntary relinquishment of weapons of mass destruction with Iraq's defiance, which led to military action and the toppling of leader Saddam Hussein.
Nato expressed "great satisfaction" at the move. Spokesman Jamie Shea told the AFP news agency that it attached "great importance to all efforts to rein in proliferation" of such weapons.
French Foreign Minister Dominique de Villepin described the deal as "a success for the entire international community".
However, he urged Libya to "implement without delay" its commitment to compensate the families of those killed in the 1989 bombing of a French airliner over Niger.
Israeli Foreign Minister Silvan Shalom said Libya's announcement would be seen as a positive move, if it were indeed realised, and would pave the way for the country to rejoin the international community.
The BBC's Jill McGivering in Jerusalem says Israel will be hoping that this deal will set a precedent, adding to the pressure on other countries in the region like Iran and Syria to comply with international obligations.
But she says Israel, too, may face increased pressure about its own weapons programme - a subject it refuses to discuss.