Libya’s strongman leader, Col. Moammar Gadhafi, was an international pariah in the 1980s and 1990s. He now has reformed and given up his terrorism and his nuclear weapons program, but Bush administration efforts to patch things up have run into difficulties.

Mr. Gadhafi, a sort of one-man al-Qaida at the time, was involved in terrorist attacks in which 198 Americas were killed as well as hundreds of others. They included a Berlin disco explosion in 1986 and the 1988 Pan Am 103 bombing over Lockerbie, Scotland.

Mr. Bush left Libya off his 2002 “axis of evil” and evidently had other plans. With tough talk against North Korea and Iran and an invasion of Iraq, he showed Mr. Gadhafi what could be in store for his country if he continued his threatening course. The Libyan leader had already promised to pay $2.7 billion to the families of the Pan Am bombing, and in 2003 he publicly scrapped his terrorism and nuclear weapons programs.

The Bush administration hailed the development as a major diplomatic achievement and saw it as a precedent for North Korea and Iran to disarm themselves. Washington lifted economic sanctions against Libya in 2004 and restored full diplomatic relations in 2006. In 2007, Libya gained a seat on the United Nations Security Council.

Now Libya is experiencing an economic boom based largely on the soaring price of oil and its huge proven reserves of light, sweet crude oil, best for producing gasoline. The big oil companies, blocked from Libya for decades by American sanctions, have resumed operations and plan to help Libya become a major U.S. oil supplier again.

But trouble has developed.

With a half-dozen damage suits pending for claims totaling billions of dollars, Congress passed a law permitting victims’ families to sue for punitive as well as actual damages and to seize any asset owned by a terrorist-sponsoring country. Lawyers are already attaching liens to Libyan assets in the United States.

Mr. Bush signed the new law in January after getting a waiver for the struggling young government in Iraq. It applies to Libya, North Korea, Iran, Syria and Cuba. The president wants a waiver for Libya, but several key members of Congress say they won’t allow it until victims’ claims are fully satisfied.

The Wall Street Journal’s Jay Solomon, reporting details of U.S.-Libyan relations, disclosed recently that Mr. Gadhafi sent President Bush a letter, protesting against the new law and claiming that Washington has not followed through with promised political and economic incentives.

Quiet negotiations are said to be under way for an overall settlement of the terrorism claims. Until they succeed, U.S. firms will have trouble doing business with Libya, and Mr. Bush’s supposed diplomatic achievement will remain in jeopardy.