TRIPOLI (Reuters) - Libya and the United States signed a comprehensive deal on Thursday to compensate all U.S. and Libyan victims of bombings or their relatives, Libyan officials said.

The U.S. victims include those who died in the 1988 bombing of Pan Am Flight 103 over Lockerbie, Scotland, that killed 270 people and the 1986 attack on a Berlin disco that killed three people and wounded 229.

Libyans who were killed in 1986 when U.S. warplanes bombed Tripoli and Benghazi are also covered by the pay-out, Libyan officials added.

Libya, a major oil producer, said at least 40 people were killed, including Libyan leader Muammar Gaddafi's adopted daughter, in the U.S. strikes.

In Washington, a State Department official confirmed the signing of the deal.

"This international agreement between the two sides ends any pending issue between Tripoli and Washington. It clears the way for normal and complete relations between Libya and the USA," Azzam Eddine, a member of the Libyan team who negotiated the deal, told Reuters.

U.S. Assistant Secretary of State David Welch, the U.S. senior diplomat for the Middle East who was in Tripoli for the signing, told reporters: "I'm optimistic that this agreement will be implemented soon. This agreement will settle the last major issue, which is compensation."

After more than a decade of international isolation, Libya has been slowly coming in from the cold since 2003, when it accepted responsibility for the Lockerbie bombing and announced its would stop pursuing nuclear, chemical and biological weapons.

The United Nations lifted multilateral sanctions in 2003. Thursday's agreement would end the legal liability to Libya stemming from multiple lawsuits by families of the U.S. victims and it would allow a further warming in ties between Tripoli and Washington, the Libyan officials said.

Libyan officials declined to give financial details on the compensation, including who would pay the Libyan victims.

U.S. President George W. Bush this month signed into law legislation that paved the way for Libya to pay hundreds of millions of dollars to compensate U.S. victims of the bombing attacks that Washington blames on Tripoli.

The United States has dramatically improved relations with Libya since 2003, dropping many U.S. sanctions, removing it from a U.S. terrorism blacklist and restoring diplomatic links after decades of enmity.

The bombing compensation cases had still hampered better relations, however. U.S. Secretary of State Condoleezza Rice had held back on visiting Libya because of the issue and other human rights concerns but she said in recent months she hoped to visit Tripoli before the end of Bush administration's term in January 2009.

Ties had reached a low in the late 1970s and 1980s, when Washington designated Libya a state sponsor of terrorism and then U.S. President Ronald Reagan referred to Gaddafi as the "mad dog of the Middle East".