The first top U.S. diplomat to visit the onetime pariah state in more than half a century, Rice was greeted by Gadhafi at the presidential compound that U.S. jets bombed 22 years ago.

Rice's trip demonstrates that decades of hostility between the two countries have ended.

"Quite frankly, I never thought I would be visiting Libya," Rice told reporters. "It's quite something. This demonstrates the United States does not have permanent enemies. It demonstrates that if countries are prepared to make strategic changes in direction, the United States is prepared to respond. It's a beginning, it's an opening. It's not, I think, the end of the story."

In 2003, Gadhafi gave up his nascent programs to develop chemical, biological and nuclear weapons and renounced support of international terrorism. Libya agreed to pay $2.7 billion to the families of victims of the 1988 bombing of Pan Am Flight 103, and U.S. officials say its government has become helpful in thwarting the flow of foreign fighters from North Africa into Iraq.

Rice is the first secretary of state to visit Libya since John Foster Dulles in 1953. Officials in both countries eagerly anticipated Rice's meeting with Gadhafi; the Bush administration wants to showcase a rare foreign-policy success, and Libya believes Rice's visit will finally put its notorious past behind it and open up investment possibilities.

Although diplomatic relations between the two countries were restored in 2006, a rapprochement was slowed by litigation stemming from Libya's past involvement in terrorism. Last month, the last remaining hurdle preventing Rice's visit was cleared when the United States and Libya agreed to settle claims resulting from the 1986 bombing of a disco in Berlin that was frequented by U.S. military personnel.

The deal also settled Libyan claims for deaths that stemmed from a U.S. bombing raid over Tripoli in retaliation for the disco attack.

Gadhafi's shift has opened up Libya for business, after years of isolation. Libya, a member of OPEC, holds the largest proven oil reserves in Africa, amounting to more than 3 percent of the world's reserves. Libya is seeking to nearly double oil output capacity to three million barrels a day by 2012. It is also seeking to invest in the United States, via a $50 billion sovereign wealth fund.

Although Gadhafi has opened up to the West, he has retained a tight grip on power. Human-rights groups have urged Rice to address questions about democracy, and called on her to raise the case of Libya's leading dissident, Fathi al-Jahmi.

Jahmi, 67, has been jailed or held in a hospital since 2002 - except for a brief interlude in 2004 engineered by Sen. Joseph R. Biden Jr., now the Democratic vice presidential candidate - for advocating freedom of speech and democracy and also for meeting with U.S. diplomats.

Rice said she planned to raise Jahmi's case and other human-rights issues during her visit, saying "it was disturbing" that under Libyan law he faces the death penalty for meeting U.S. diplomats.