Relatives of victims divided over Gaddafi's terms for money handover

The conditions Libya has attached to its compensation offer last night divided the families of American victims, some of who said Colonel Gaddafi was offering blood money in order to negotiate his return to lucrative oil deals.

The letter sent to the relatives of those who died on Pan Am Flight 103 makes clear Libya's offer is dependent on the UN and US sanctions being removed. It said Libya had proposed a three-part payment: 40 per cent of the money coming when the UN sanctions were lifted, another 40 per cent after US commercial sanctions were removed and the remaining 20 per cent to be handed over when Libya was taken off the US list of states sponsoring terrorism.

Last week, Libya was included on the State Department's latest list.

Susan Cohen of New Jersey, who lost her 20-year-old daughter, Theodora, said: "I feel this is a sickening business deal which has nothing to do with any real change on the part of Libya. It's a buy-off of the families that serves only the purpose of the Libyans to get out of sanctions." Others believe the deal is the best they will receive. Glenn Johnson, chairman of Victims of Pan Am Flight 103 – a group that represents most of the US families – said he was minded to accept the offer. "We have to look at the facts," he said. "I think our government has pushed them as far as they can on this."

A Foreign Office spokesman said the deal was evidence of Libya's desire to meet the requirements set out by the US but that it would have to study the offer in full before it could make recommendations.

Diplomatic sources suggested the US government would not be inclined to lift sanctions or remove Libya from its "terrorist states list" despite a belief that Libya has responded encouragingly to America's so-called "war on terror".

"I think it would be a stumbling block," said one diplomatic source.

Lockerbie local councillor Marjory McQueen said she was "left numbed" by the news. "You just don't really know what to think about this or how to react," she said. "It is impossible to put a monetary value on a person's life and I have been left cold by this announcement, even though to some this might sound like a lot of money."

While Libya has been in compensation discussions since February last year, it seems likely that the decision earlier this March to uphold the conviction against Abdelbaset Ali Mohamed al-Megrahi by a Scottish Court for the bombing, will have encouraged Libya to settle. Libya is keen to get rid of sanctions to restart oil deals.

If the deal is concluded, it would be the biggest compensation of its kind. The Families' Law firm said it was a "vast multiple of settlements in other aviation or terrorism cases"

In addition to the compensation, the UN Security Council resolution demands Libya renounce terrorism, acknowledge responsibility for the bombing and disclose all it knows about the incident.