Libya has lifted a visa ban on citizens of 25 European countries after Switzerland agreed to drop a visa blacklist against top-level Libyans.
Libya hailed the agreement with the European Union as a victory over Switzerland, which no longer has any means of exerting pressure on Tripoli to release a Swiss businessman jailed there.
The Swiss foreign ministry dismissed allegations its visa blacklist had violated the rules of the borderless travel zone grouping 22 EU countries, Switzerland, Norway and Iceland.
The end to the visa ban and the so called Schengen zone blacklist will likely defuse a crisis that has threatened to damage growing business ties between Europe and oil exporter Libya.
“In the interests of strengthening its cooperation with the European Union, Libya is lifting the restrictions it earlier imposed on the citizens of the Schengen zone,” said Libya's foreign ministry in statement on Saturday.
Spain – which holds the EU presidency - had earlier announced the visa blacklist had been torn up and expressed its regret at its imposition, as part of a diplomatic drive by EU leaders.
"Libya expresses its appreciation towards the European Union for this move. This is a defeat for Switzerland by means of collective European action,” Tripoli said.
Libya stopped issuing visas to citizens from the Schengen zone in retaliation for Switzerland barring entry to 188 Libyan citizens, including the country's leader Muammar Gaddafi and members of his family.
The Swiss move prevented the blacklisted Libyans from obtaining entry visas to the Schengen zone, but not to individual countries. The terms of the Schengen agreement obligate all members to refuse visas to citizens of countries blacklisted by fellow Schengen nations.
However, the Libyan foreign minister, Moussa Koussa, said the crisis with Switzerland was not resolved.
Asked about the prospects for an agreement, he said: "That's up to them [the Swiss]. If they want to solve it we are ready. If they don't want to, it's up to them."
Koussa said Libya would take part in talks on the dispute in the near future which he said would be mediated by Spain and Germany.
Libya called for an international arbitration panel to examine the circumstances of the temporary arrest of a son of the Libyan leader in Geneva in July 2008 on charges of mistreating his household staff.
The Swiss foreign ministry on Saturday said the blacklist, imposed last November was in line with Schengen regulations and the aim was to secure the release of two Swiss businessmen held in Tripoli in a long-standing diplomatic row.
The ministry added that the visa restrictions were imposed for “reasons of public and national security” and in a move “confirmed by the EU Commission”.
“The top priority for the government is to obtain the release of the Swiss citizen Max Göldi from prison so he can leave Libya,” the statement added.
Göldi, along with another Swiss businessman, was barred from leaving Libya following the temporary arrest in Geneva of a Hannibal Gaddafi.
Switzerland has been locked in a fierce diplomatic dispute with oil exporter Libya ever since.
In February Gaddafi urged jihad against Switzerland and earlier this month Libya slapped a trade embargo on Switzerland.
The Spanish statement was issued after Spain's Foreign Minister Miguel Angel Moratinos arrived for talks in the Libyan town of Sirte, where Gaddafi is this weekend hosting a summit of the Arab League.
“We regret and deplore the trouble and inconvenience caused to those Libyan citizens. We hope that this move will not be repeated in the future.”
Italian Prime Minister Silvio Berlusconi -- whose country has some of Europe's closest business ties to Libya and who has criticised the Swiss visa blacklist -- was also in Sirte on Saturday as Gaddafi's guest.
Göldi is serving a four-month sentence for breaking immigration rules.
Libyan officials deny any connection between Göldi's prosecution and Hannibal Gaddafi's arrest in Geneva.
A senior Libyan official, who did not want to be identified, was quoted as saying on Friday that Göldi would be freed "very soon."
For his part Göldi's lawyer said if his client was to be released early it would happen after the summit ends on Sunday. But he later said the release was unlikely over the next week.
swissinfo.ch with agencies
July 15, 2008: Hannibal Gaddafi and his wife are arrested in Geneva and charged with abusing their staff. They are released on bail and leave Switzerland. The servants are later compensated and charges withdrawn.
July 19: Swiss nationals Max Göldi and Rachid Hamdani are arrested in Tripoli. In the following days, Swiss businesses are forced to shut and the number of flights to Tripoli is cut.
August 20, 2009: The Swiss president apologises in Tripoli for the arrest.
September: Göldi and Hamdani cannot leave the country despite a promise they would be freed by September 1.They disappear after undergoing a medical check-up in Tripoli. They are returned to embassy on November 9.
November: Swiss cabinet says it will pursue visa restrictions for Libyans.
December 1: Göldi and Hamdani sentenced to 16 months in prison and fined. In January 2010 this is cut to 4 months for Göldi, and Hamdani found not guilty.
January - February 2010: Hamdani cleared of second charge of conducting business illegally. Göldi given modest fine.
February 14: A Libyan newspaper reports Switzerland has drawn up a blacklist of 188 top Libyans.
February 15: Libya stops issuing visas to citizens of nations in the Schengen zone.
February 17-18: Swiss, Libyan, Italian, Spanish and Maltese foreign ministers try to hammer out a solution.
February 22: Göldi hands himself over to Libyan authorities to start four month prison term. Hamdani obtains an exit visa and leaves for Tunisia. He arrives in Switzerland on February 23.