An odd statue adorns the square not far from the headquarters of Libyan leader Moammar Gadhafi in Tripoli. Three books, two spiders and their artfully spun web make a bold, over-sized statement in bricks, tin and wire. The books -- one each in red, blue and green -- represent three different ways humans can live together, at least according to Colonel Gadhafi's way of thinking.

The red book, “The Theory of Marxism,” is tinged by rust. A spider crawls across the blue book, “The Theory of Capitalism.” But rising out of the decay and webs is the third, disproportionately large green book -- the revolutionary leader’s political primer. The book, originally written in the seventies, is decorated with ornate calligraphy: “The solution for the democratic problem: rule by the people.”

On closer inspection, the green book is not immune to the elements either – dust and bird droppings have collected on the back cover and the paint is beginning to peel. But it looks like the “Third Universal Theory” from Libya's top thinker may yet have a lease on life after the United States last week dropped its decades-long opposition to Gadhafi's regime by restoring diplomatic ties between Washington and Tripoli.

Since the move came years earlier than expected, US Secretary of State Condoleeza Rice offered an explanation of the Bush administration's decision. The resumption of full diplomatic relations after 25 years is a “tangible” result “from the historic decisions taken by Libya's leadership in 2003 to renounce terrorism and to abandon its weapons of mass destruction programs.” Removing Libya from the list of terrorism-supporting nations is a chance to discuss “protection of universal human rights, promotion of freedom of speech and expression, and expansion of economic and political reform consistent with President Bush's freedom agenda,” she said.

The move isn’t only about Libya, it’s also clearly about global politics. It’s designed to send a signal well beyond the Northern African desert nation to Pyongyang, which may already be a nuclear power, and to Tehran, which wants to become one. “Libya is an important model as nations around the world press for changes in behavior by the Iranian and North Korean regimes," Rice said. John Bolton, Washington's gruff ambassador to the United Nations, was more concise: “If Libya can do it, Iran can do it.”

Rewarding a rogue

America's decision to reward a rogue for a lesson learned is impressive, but not without controversy. The survivors of the Lockerbie terrorist attack -- for which a Libyan intelligence agent was eventually convicted and Tripoli was excused in exchange for nearly $3 billion in reparations -- learned of the decision that morning through an e-mail from their US government. Their contempt was obvious. “Gadhafi has gotten everything he wanted. He has totally triumphed,” said Susan Cohen from New Jersey, who lost her only child in the airplane bombing in 1988. “The only reason they are doing this is for oil.”

The reconciliation with what President Ronald Reagan dubbed the “mad dog of the Middle East” with the Bush administration's supposedly righteous and uncompromising foreign policy does indeed raise a few questions. Does Gadhafi's government truly fulfill the high standards of America’s freedom rhetoric? Can the United States enter a dialogue with a dictator before he converts to democracy? What do Muslim fundamentalists Hamas in Palestine, Hezbollah in Lebanon or Iran’s President Mahmoud Ahmadinejad have to do also to be rewarded by Washington?

A few weeks ago, Libya and the United States still appeared to be far apart. President George Bush was a “criminal,” the United States a “damned country that deserved nothing other than curses,” said Ahmed Ibrahim in a speech during the 20th anniversary of the United States’ bombing of Tripoli. The bombing was retaliation for a terrorist attack on “La Belle” discotheque in Berlin in April 1986, which killed two US servicemen.

Ibrahim, a Gadhafi relative, has the unimpressive title of deputy secretary of the Libyan General People’s Congress. In reality, he is the second-most powerful man in the country and the leader of its political elite. He gained yet more influence this spring when Brother Leader, as Gadhafi likes to be called, bolstered Ibrahim’s position by dismissing the reform-minded prime minister, Shukri Ghanim, and his cabinet. Gadhafi’s own version of perestroika, which began before he gave up his weapons of mass destruction in 2003, seemed to have reached its limits.

Another memorial event for the US attack was attended by Gadhafi’s daughter Aicha, who is a member of former Iraqi dictator Saddam Hussein’s team of lawyers. Spanish tenor Jose Carreras and ageing American pop singer Lionel Richie sang at the site targeted in the 1986 bombing raid. Hana, Gadhafi’s posthumously adopted daughter who killed in the attack, “would be happy tonight,” Richie told the audience. The celebration lasted until dawn.

Good for reform?

But what does the reconciliation mean for the power struggle in Libya? America’s diplomatic initiative could benefit the reformers in the bizarre jumble of contradictions that is modern Libya. Or it could be their doom in the place formally known as the Great Socialist People's Libyan Arab Jamahiriya. The initial winners are clearly the urban elite of Tripoli, Benghazi and Tobruk, whose lives are already leaning to the West.

The oil boom has made them rich. Libya earns about $80 million a day and will take in more than $30 billion this year on petroleum. The wealth is now becoming palpable. Mid-size cars wait in traffic jams along the coastline near Tripoli. Gadhafi’s son Hannibal pilots a white Humvee, a military jeep that represents the US invasion of Iraq in other parts of the Arab world. The airport in Tripoli now has a business lounge even though elsewhere in the country Libyans refuse to sit in the back of a taxi, careful not to make the driver look like a servant.

The hip drink of the moment in the seaside towns along the Mediterranean is the macchiato, a remnant of the officially hated Italian colonial period. Today, the milk foam peeks over the edge of a paper cup, just like it does in America. But men’s fashion is all Italian -- dark suits, light-blue shirts, thin brown shoes.

The style has been made popular by yet another son of Gadhafi – Seif al-Islam, 33, an eccentric but bright son who has trouble hiding his ambitions. He’s already confessed to having no interest in Libya’s presidency, not to mention becoming a revolutionary leader like his father. But as head of the organization that pays restitution for the Lockerbie and “La Belle” bombings, his intentions have become very clear.

Advice from Harvard

In the spring of 2005, he invited Harvard Business School economist Michael Porter to Libya. Porter is a former economic adviser to Reagan and a leading expert on competition. Gadhafi’s son met him at the World Economic Forum in Davos, Switzerland. For ten months, Porter and a 25-member team of international experts investigated Libya’s ministries, oil industry and economy. Recently, they published their report. “It is,” said an experienced European diplomat in Tripoli, “the most revealing document that has ever been written about the internal state of an Arab nation.”

The diagnosis is brutal. The bureaucracy, education system and health care sector come off far worse than they were portrayed in an earlier United Nations report. Only three percent of Libyans work in the oil sector, but they account for 60 percent of the gross national product. More than half of the population works in the service sector but make up just nine percent of the gross national product. Unemployment has crested 30 percent. Without oil, the country would be a disaster.

But the solution is heartening. Libyans were “motivated and open” when they spoke to one of the researchers, an experience “without comparison to what we’ve experienced in other countries.” The country’s energy sources are large with guaranteed reserves of 40 billion barrels of the lightest and most sulfur-free crude -- all within proximity of oil-thirsty European markets. With smart leadership, Libya could become an exemplary country by 2019 -- the 50th anniversary of the revolution -- “egalitarian, productive, democratic and green,” according to the report.

The study's preamble is a masterpiece of Middle East diplomacy that touches on the Achilles Heel of the whole experiment: “Our strategy attempts to improve Libya’s global competitiveness while maintaining its unique character as a government of the masses (jamahiriya).” This refers to Gadhafi’s theory that a government must only implement the decisions taken by an elite inner circle despite the convening of hundreds of people’s congresses -- currently 468 -- that meet for two weeks four times a year.

Working with Arab autocrats

This raises yet another question, which the geostrategists in the State Department must also be asking after the debacle in Iraq -- Can Arabic autocracies be reformed even if the autocrats and their regimes remain -- at least temporarily -- in power? Porter’s project manager, Rajeev Singh-Morales, said the economist has traveled to Tripoli a number of times in past months but each time he had to wait three weeks for his visa: “Terrible. Sometimes it’s the simplest things that don’t work.” Unmentioned are the power of various intelligence organizations, the silence about the ongoing human rights violations or the fact that the editor of the country’s biggest newspaper doesn’t feel comfortable meeting with a foreigner without the permission of the Foreign Ministry.

On June 13 in Tripoli, a criminal court will again meet to determine the fate of five Bulgarian nurses and a Palestinian doctor  who have been incarcerated for seven years. According to a now overturned death sentence handed down by another court, the medical professionals allegedly infected more than 400 children with HIV in a hospital in Benghazi.

The trial has long since been denounced as a farce by international experts, but it could become a test case for both the ability of Gadhafi’s system to reform and the wisdom of new American initiative. “We Europeans wondered,” said a diplomat in Tripoli, “why Washington didn’t at least wait for this new hearing before rehabilitating Libya.” The answer may lie in a political deal that has yet to be made public. Washington might be willing to make complex compromises to try and forward its agenda of freedom.