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France said on Monday families of 170 people killed in the 1989 bombing of a French airliner were close to a compensation deal with Libya that would clear the way for a quick end to U.N. sanctions against Tripoli.

Foreign Minister Dominique de Villepin said the signing of the deal was imminent and France would then drop a threat to veto the lifting of sanctions imposed after the 1988 bombing of a Pan Am airliner over the Scottish town of Lockerbie.

Libyan Leader Muammar Gaddafi said on Aug 31, 2003 that a deal had been struck to increase compensation for a 1989 French airliner bombing, allowing Libya to close the Lockerbie case and repair relations with the West. Gaddafi is shown at a May 22 news conference.    [Reuters]

"The basis of an accord has been found, it remains to be finalized and that is what will be done in the next few hours," Villepin told French RFI radio.

He did not disclose details of the payout but said it would be made to relatives of all the victims. People of 17 nationalities including Africans, Americans, Britons and Italians were on board the UTA plane, bombed over Niger.

Asked if France would allow the U.N. Security Council to pass a British draft resolution lifting sanctions against Libya as early as this week, he replied: "We have always said we back the principle of lifting sanctions and of course this will lead us to draw the consequences very quickly."

By Monday evening, a spokesman for the families told Reuters that talks with a private foundation run by Saif al-Islam, son of Libyan leader Muammar Gaddafi, had still not managed to clinch a final deal, although he remained optimistic.

"We are still in contact. I have had the foundation on the phone several times today. But sadly, no deal has been concluded," Guillaume Denoix de Saint Marc said by telephone.

"There are still some details left to sort out. I hope that will not take too long."

The U.N. suspended sanctions on Libya in 1999 so the new resolution will have no practical impact, especially as Washington has vowed to maintain its own separate sanctions that include a ban on Libyan oil sales to the United States.

Britain moved to permanently end U.N. sanctions when Tripoli agreed last month to pay $2.7 billion to families of 270 people killed in the airliner bombing over Lockerbie.

That figure dwarfed the $34 million Tripoli paid four years ago after a Paris court convicted six Libyans in absentia for the killings, including Gaddafi's brother-in-law.

CHIRAC TELEPHONES

France said it would block any new resolution until the UTA families received a higher payout, raising the prospect of another showdown in the Security Council, where Paris had spearheaded opposition to the U.S.-led war on Iraq war.

A source familiar with the Libyan position told Reuters Tripoli had offered an extra payment of $300,000 per family.

In an address to the nation on Sunday, Gaddafi said President Jacques Chirac had called him to urge greater compensation for the UTA families.

"Chirac telephoned me asking for a solution for the problem over the compensation, saying he is embarrassed by the families of the victims who asked why the French victims got less money than the Americans (in the Lockerbie case)," said Gaddafi.

"I understand the position of the French president who asked for a human and friendly solution," he said on the anniversary of the 1969 coup that brought him to power.

"We are opening a new page in our relations with the West."

He repeated that Libya had no role in the Pan Am or UTA bombings, saying Libya was blamed for both due to disputes with the United States and France in the 1970s and 1980s.

The White House said last month its unilateral sanctions against Tripoli will remain in force until concerns about Libyan weapons programs were addressed.

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