WASHINGTON — Libya’s remarkable transformation from American foe to friend is almost complete.

Despite unresolved terrorism and human rights concerns, America took another step toward ending decades of hostility with the North African nation yesterday as Secretary of State Rice met with the Libyan foreign minister in the highest-level contact between the two countries in Washington in 35 years.

The hour-long visit of the minister, Abdel-Rahman Shalqam, to Ms. Rice’s State Department offices capped years of improving ties that began in 2003 when the Libyan leader, Muammar Gadhafi, agreed to abandon his weapons of mass destruction programs, renounce terrorism, and pay compensation to the families of victims of several attacks, including the infamous 1988 bombing of Pam Am flight 103 over Lockerbie, Scotland.

Those steps marked the beginning of the end for Libya’s international pariah status, removing U.N. and American sanctions, allowing it to sail without opposition into a seat on the U.N. Security Council last year and normalizing relations with the West.

The America and Libya restored diplomatic relations in 2004 after a 27-year hiatus, and shortly after his meeting with Ms. Rice, Mr. Shalqam watched as officials from the two countries signed their first bilateral agreement — a science and technology cooperation pact. Ms. Rice did not attend the signing ceremony.

“I hope this event will help us to [move] ahead,” Mr. Shalqam said. “I would like to say thanks to God, that we start with education, with culture. We don’t speak anymore about war or confrontation or terrorism. No, to the contrary, [we speak of] cooperation, investments, peace, and stability.”

But amid the improvements, the America-Libya relationship remains unsettled. Congress is holding up key elements of the rapprochement — money to open a new American embassy in Tripoli and a confirmation hearing for the new American ambassador there — until Libya completes compensation payments for the downing of Pan Am 103 and a 1986 Berlin disco bombing.

Underscoring the last remaining reservations, the State Department canceled a planned photo opportunity at the start of the Rice-Shalqam meeting after determining that only the presence of an official photographer was “appropriate” for the event.

Ms. Rice pressed Mr. Shalqam on the need for Libya to finish payments to the families of 270 Pan Am victims and those killed and wounded in the LaBelle disco attack as well as improve its human rights record if it is to fully enjoy the benefits of American friendship, the State Department said.

Families of the Pan Am 103 victims have been particularly outspoken in their opposition to full ties with Libya and a group of American lawmakers, led by Senator Lautenberg, a Democrat of New Jersey, and Democratic presidential candidates Senators Clinton and Dodd, is demanding that compensation be completed before the normalization is finalized. “Libya has a responsibility to fulfill its commitments to American victims of its terror and has failed to do so,” Mr. Lautenberg said in a statement yesterday.

“While Libya’s foreign minister meets with Secretary Rice, the victims of the Pan Am 103 and La-Belle bombings continue to be ignored,” he said. “It is time for the Libyans to address these issues with the seriousness they deserve and for Libya to provide justice for all American victims of these attacks.”

Ahead of Ms. Rice’s meeting, Human Rights Watch urged the secretary to demand improvements from the Libyans by allowing a free press, ending a ban on independent organizations, stopping the torture of detainees and releasing political prisoners. It said it knew of several cases, including the disappearance of three dissidents.

“We welcome improved relations between Libya and the U.S., but not at the expense of political prisoners, torture victims, and other Libyans who suffer abuse,” it said in a statement.

A State Department spokesman, Sean McCormack, said Ms. Rice, who wanted to visit Libya last year but was unable to arrange the trip, still intends to visit the country before the end of President Bush’s term next January.

“She does intend to, she looks forward to going there,” he said, adding that no dates had been arranged. “She’ll go when she thinks the timing is right.”

If and when she goes to Libya, Ms. Rice will be the first secretary of state to visit the country since John Foster Dulles in 1953.

Ms. Rice has seen Mr. Shalqam before on the sidelines of the U.N. General Assembly in New York, but the last time a Libyan foreign minister visited the State Department was in 1972.