Washington ? The United States will restore full diplomatic relations with Libya and remove it from a list of terrorism sponsors, the Bush administration said Monday, rewarding Moammar Gadhafi’s government for renouncing weapons of mass destruction and cooperating in the hunt for terrorists.

“Today’s announcements are tangible results that flow from the historic decisions taken by Libya’s leadership” to renounce terrorism and weapons of mass destruction, Secretary of State Condoleezza Rice said in announcing moves long sought by Libya.

While announcing expanding ties to one oil exporter, the United States clamped down on another. The State Department announced later that it is banning arms sales to Venezuela because of what it says is a lack of support by President Hugo Chavez’s government for counterterrorism.

The announcements came as the West grasps for carrots or sticks to counter what it claims is a growing risk of nuclear proliferation in Iran. Although the United States is not now dangling the promise of normal diplomatic relations with Iran, it pointed to Libya’s decision as an international example.

“The United States hopes that states with even more threatening WMD and missile programs will see Libya’s experience as a model to emulate,” a State Department fact sheet on the Libya deal said.

By taking Libya off the terrorism sponsorship list, the Bush administration clears the way for broader economic ties with the oil-producing nation during a period of record-high gasoline prices in the United States.

Assistant Secretary of State David Welch said a search for oil was not behind the decision, and noted that U.S. companies have been able to operate in Libya since some sanctions were lifted in 2004.

The United States withdrew its last ambassador to Libya in 1972. Remaining U.S. employees pulled out and the Tripoli embassy was shut down after a mob attacked and set fire to it in December 1979.

The relationship hit its nadir following the 1988 bombing of Pan Am 103 over Lockerbie, Scotland. Libya was held responsible for the bombing, which killed 270 people, most of them American. Libya was also implicated in the 1986 bombing of a Berlin nightclub frequented by U.S. soldiers, killing two Americans, and the bombing of a French airliner in 1989 that killed 170.

Gadhafi surprised the world in late 2003 when he swore off terrorism and announced plans to dismantle his country’s weapons of mass destruction programs. Libya was eager to end the international isolation and economic hardships from United Nations and U.S. sanctions in the Pan Am case, and Gadhafi concluded the weapons programs were best used as a bargaining chip.