The signing comes after a long process of negotiation
The US and Libya are set to renew diplomatic relations after signing a deal to compensate all victims of bombings involving the two countries.
The agreement will fully compensate victims of the 1988 Lockerbie bombing, and of the bombing of a Berlin disco two years earlier.
It will also address Libyan claims arising from US attacks on the Libyan capital, Tripoli, and Benghazi in 1986.
The deal was signed in Tripoli by US and Libyan officials.
David Welch, US assistant secretary of state and Washington's top Middle East diplomat, met Ahmed al-Fatroui, head of America affairs, in Libya's foreign ministry to seal the agreement.
Mr Fatroui told reporters it was "the crowning of a long process of exhausting negotiations".
Mr Welch said it was a very important agreement that "turns a new page in our relationship".
"Under this agreement each country's citizens can receive fair compensation for past incidents. When fulfilled, the agreement will permit Libya and the US to develop their relations," he said.
He told the BBC that the amount of compensation in question was $1.5bn (£803m) for the US families and $300m (£160m) for the Libyan families.
Libyan state media said US President George W Bush had sent a message to the Libyan leader, Muammar Gaddafi, saying he hoped relations between the two countries would continue to improve.
Some of the incidents the compensation deal covers
The agreement does not constitute an admission of fault by either party.
An international Humanitarian Settlement Fund will be set up in Libya to compensate all American and Libyan claimants.
Foreign companies and international institutions operating in Libya, which include some American companies, will contribute to the fund.
The deal also paves the way for a full restoration of relations, including the opening of a US embassy in Tripoli and direct US aid.
In all, there were 26 lawsuits filed by American citizens against Libya and three by Libyan citizens against the US.
The 1988 bombing of Pan Am Flight 103 over Lockerbie, Scotland, killed 270 people and the 1986 bombing of a Berlin disco killed three people and wounded more than 200.
Libya says at least 40 people died in the US air strikes.
Relations between Libya and the US have improved dramatically since 2003, when Libya accepted responsibility for the Lockerbie bombing.