The US has lifted a ban on its citizens travelling to Libya, as it moves to normalise relations after 23 years of wide-ranging sanctions.
The move follows Gaddafi's decision to dismantle weapons programmes
Most trade restrictions will remain, but US companies will now be allowed to prepare to return to Libya.
The moves are a reward for Libya's decision to scrap weapons programmes.
They follow Tripoli's affirmation on Wednesday that it stood by its acceptance of responsibility for the Lockerbie bombing in 1988.
Earlier remarks by Prime Minister Shokri Ghanem had led to plans to lift the travel ban being put on hold.
In another development on Thursday, it was announced that Libya is set to start destroying its chemical weapons.
The Hague-based Organisation for the Prohibition of Chemical Weapons said it is to monitor the destruction of more than 3,000 unfilled Libyan chemical bombs during a week-long programme due to begin on Friday.
US National Security Spokesman Sean McCormack told reporters the decision to lift the Libya travel ban was designed to boost Libya's economy and efforts at re-integration with the international community.
"The United States will take steps to encourage Libya to
continue on this path, including rescinding the restriction on the use of American passports for travel to Libya," he said.
White House spokesman Scott McClellan later announced that US companies with pre-sanctions holdings in Libya would be allowed to negotiate their re-entry into operations there.
The US will also encourage Tripoli to open an interests section in Washington, a level beneath an embassy, and will expand its own diplomatic activity in the Libyan capital.
Correspondents say the new measures will give US
corporations an opportunity to do lucrative business
legally in Libya's rich oil fields.
Last August, Libya wrote a letter to the United Nations Security Council accepting responsibility for the bombing over the town of Lockerbie.
It also agreed to pay compensation to the relatives of victims of the crash, opening the way for the lifting of sanctions and renewed ties with the West.
Relations have warmed in recent months following the decision by Libya's leader, Colonel Muammar Gaddafi, to dismantle weapons-of-mass-destruction programmes.
But this thaw was threatened on Tuesday when Mr Ghanem told the BBC that his country did not accept guilt for the Lockerbie bombing or the shooting of British police officer Yvonne Fletcher.
He said Libya had "bought peace" when it agreed to pay $2.7bn compensation to the victims' families.
The following day Libya issued a retraction, saying that it did accept responsibility for the bombing.
"Libya's retraction yesterday clarified that their statement of 15 August 2003 still stands," said Mr McCormack.