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Italian Prime Minister Silvio Berlusconi has signed an agreement to pay Libya $5bn as part of a deal to resolve colonial-era disputes.
Libyan leader Col Muammar Gaddafi said the settlement signed in the city of Benghazi opened the door to partnership between the two states.
Mr Berlusconi said the deal, which sees the money being released over 25 years, ended "40 years of misunderstanding".
Libya was occupied by Italy in 1911 before becoming a colony in the 1930s.
The former Ottoman territory became an independent country in 1951.
This is the first African country to be compensated by a former colonial master, the BBC's Rana Jawad reports from Benghazi.
BBC NEWS | World | Europe | Italy seals Libya colonial deal
Libyan leader Col Muammar Gaddafi said the settlement signed in the city of Benghazi opened the door to partnership between the two states.
Mr Berlusconi said the deal, which sees the money being released over 25 years, ended "40 years of misunderstanding".
Libya was occupied by Italy in 1911 before becoming a colony in the 1930s.
The former Ottoman territory became an independent country in 1951.
This is the first African country to be compensated by a former colonial master, the BBC's Rana Jawad reports from Benghazi.
BBC NEWS | World | Europe | Italy seals Libya colonial deal