The Bush administration said Monday that progress is being made toward normal relations with Libya though it discouraged talk of an imminent breakthrough. A key U.S. Senator met Libyan leader Muammar Gadhafi late last week.

Officials here say that progress is being made on problem issues with Libya, but they are downplaying the notion that relations with the North African state might shortly be elevated to the full embassy level.

The son of the Libyan leader, Seif Al-Islam Gadhafi, told reporters in Tripoli Monday that the United States would open an embassy there within days, and that Libya would be removed from the State Department's list of state sponsors of terrorism by the end of the year.

The remarks followed a visit to Libya late last week and talks with the elder Mr. Gadhafi by Senate Foreign Relations Committee Chairman Richard Lugar, one of the most prominent U.S. political figures to go there since a thaw in bilateral relations began in late 2003.

Libya sparked the warming trend with a decision to acknowledge and dismantle a covert weapons of mass destruction program.

It also admitted responsibility for the 1988 bombing of a U.S. Pan Am jetliner over Scotland and agreed to pay more than two billion dollars in compensation to victims' families.

The United States responded by opening a diplomatic liaison office in Libya, and the two sides have been holding talks on what Libya needs to do to be removed from the terrorism list, which mandates U.S. economic sanctions.

A senior State Department official who spoke to reporters here said he was unaware of any imminent move to upgrade the level of U.S. representation in Libya, and said substantive issues between the two countries are still be resolved.

Earlier at a news briefing, State Department Spokesman Sean McCormack said relations with Libya are dramatically different than they were a few years ago and that headway is being made on issues of concern:

"We have certainly come a long way from where we were in our relationship with Libya. But there are certainly issues that still need to be addressed," said Mr. McCormach. "And we're working with Libya on those issues. If they continue to make progress along the pathway that we have laid out, we again will meet their acts of good faith in return."

In Congressional testimony in March, the then-acting Undersecretary of State for Political Affairs William Burns said the United States might open a full-scale embassy in Libya by year's end, if what he termed the spirit of partnership the two countries have established continues.

About 20 U.S. diplomats now staff the liaison office in Tripoli and the Bush administration has lifted travel bans, asset freezes, and some other sanctions targeting the Gadhafi government.

Mr. Burns said the State Department hoped in time to remove Libya from the terrorism list, though he said it still has significant concerns about a number of Libyan policies, including its human rights record.

In his comments in Tripoli, the younger Mr. Gadhafi said some 90 detained Muslim Brotherhood activists would soon be released, and said Libya might compensate past victims of human rights abuses.

Human rights monitors say abuses continue, with the U.S. based group Human Rights Watch last week urging Libya to either release or charge a Libyan journalist held incommunicado since January.

The journalist, Abd al-Raziq al-Mansuri, had written commentaries critical of the Gadhafi government for a London-based website on Libyan affairs.