The Bush administration renewed US sanctions against Libya earlier this month. The announcement, although expected, frustrated US oil companies, which had hoped to gain access to some of the world’s largest reserves of light crude oil. The rollover of sanctions comes despite the efforts of Libya’s erratic leader, Col. Muammar Qaddafi, to convince Washington he is an ally in the war on terrorism, and it stands in stark contrast to recent European moves to improve relations with his regime.

Qaddafi has been seen as a menace by the West since 1969, when he toppled the Libyan monarchy and then moved swiftly to nationalize his country’s oil industry. In the years that followed, he reinforced his pariah status by giving refuge to notorious terrorists, including Palestinian Abu Nidal and Venezuelan assassin Carlos the Jackal. He invited the mockery of the Arab world when he refused to talk to the Palestine Liberation Organization because it was insufficiently pro-Palestinian and when, on state visits to Arab capitals, he insisted on bringing his own tent rather than bunk in presidential palaces. But none of that was enough to invite sanctions. They stemmed from the West’s belief that Libya was behind the explosion of Pan Am Flight 103 over Lockerbie, Scotland, in 1988 that killed all 259 people aboard the plane and 11 on the ground. After the bombing, the UN cracked down quickly, freezing Libyan assets around the world and banning all trade and financial dealings with the North African country.

After a period in which he kept a relatively low profile, Qaddafi by 1998 seemed intent on recasting himself, sending an obvious message that he wanted to improve his standing with the West. After years of providing arms to the Irish Republican Army, he instead began handing over intelligence to the British. He expelled terrorist Abu Nidal, who later died under mysterious circumstances in Baghdad. After an assassination attempt on Qaddafi that he blamed on Osama bin Laden, Libya became the first nation to issue evidence and a request for an Interpol arrest warrant for the al-Qaeda leader, five months before attacks on the US embassies in Kenya and Tanzania left 224 dead. In 1999, Libya handed over suspects in the Lockerbie bombing, prompting the UN to suspend its sanctions against the regime.

Libya has also tried to assist with US efforts to combat terrorism in the Philippines. Qaddafi has particularly strong contacts with the rebel groups fighting there, because during the 1970s and 1980s he helped found and sustain some of the original Muslim independence movements in the region. In March 2000, Abu Sayyaf — a militant splinter from these movements — kidnapped 58 people from a Basilan school. Later that year, the group abducted 21 more hostages, including 10 foreign tourists, from a Malaysian diving resort. The governments whose nationals were involved asked Libya for help. Before stepping in, Qaddafi secured a promise from France, Germany, Finland and South Africa to assist in ending Tripoli’s international isolation. Libya eventually put up $20 million in ransom, and the hostages were freed.

After September 11, Qaddafi further stepped up his efforts to rehabilitate himself. He was one of the first world leaders to issue a statement strongly condemning the attacks. On September 16, he declared that the US was justified in retaliating for the attacks. In subsequent months, Libyan agents reportedly stepped up delivery of three decades worth of intelligence they had gathered on al-Qaeda cells and related groups throughout the Islamic world. Last year, in an attempt to address a remaining sticking point with the US, Qaddafi offered a settlement of $10 million per victim to the families of those who died in the Lockerbie crash — although he has also backed away recently from committing Libya to paying the full amount by itself.

Qaddafi’s efforts produced results. In 1999, several European nations reestablished some ties with his regime, and over the last year, France and Britain have dispatched their foreign ministers to the Libyan capital to discuss reestablishing trade and diplomatic relations. Germany is jostling to get a chunk of Libyan oil exports, 30 percent of which currently go to Italy.

But while other countries have warmed to Libya, the US has remained unimpressed. The State Department contended that the ransom ended up attracting thousands of new Abu Sayyaf supporters and that it financed the purchase of new arms and equipment.

Part of the impasse today is caused by the fact that the US is far better at inflicting diplomatic punishments than it is at reversing them. Over time, such policies get mixed with domestic politics and no administration wants to seem soft on “rogue states,” partially reformed or otherwise, particularly in the present climate.

No one would argue that Qaddafi is an ideal leader. But sanctions against Libya no longer serve a purpose. In their original form they actually helped set Qaddafi on his way toward reform, and they succeeded because they were multilateral. The remaining US sanctions are unilateral and have no international support. As foreign capital rushes in and European diplomatic ties are quickly restored with Libya, the US sanctions serve to box in Washington far more than they do Tripoli.

The current US sanctions are an all-or-nothing proposition, with no possibility of gradual relaxation in their terms as Qaddafi institutes changes and meets US demands. It would be far better for Washington to offer, with each sign of real progress, incremental incentives: first an opening toward the non-oil sectors of the Libyan economy, then a dropping of travel restrictions, next a restoration of low-level diplomatic contacts, finally a full normalization. To achieve that final step, Libya should have to meet a hurdle not now on the table: internal democratization and human rights.

Most dissident Libyans, both inside and outside the country, want the sanctions lifted, arguing that they hurt average citizens more than they hurt the regime. But they also argue that the lifting of sanctions should be less tied to resolving the Lockerbie issues and more to the release of domestic political prisoners and the opening of civil society. These variables must be part of the equation.

Despite some recent liberalization, political repression in Libya remains widespread. There are no independent human rights organizations or nongovernmental institutions of any kind, and the government strictly controls the press. There are hundreds of political prisoners, and torture in detention is common.

Meanwhile, there are two key US conditions still pending in the Lockerbie case: payment to the victims’ families and Qaddafi’s public acceptance of guilt. As these conditions are negotiated, the US should consider altering its stand, so as to recognize how far Qaddafi has come — and give him incentive to go further.