Speaking to reporters in Luxembourg yesterday, British Foreign Secretary Jack Straw said the breakthrough came last year when Libya agreed to give up its pursuit of weapons of mass destruction (WMD).
"European Union foreign ministers have just agreed on a full lifting of the EU-Libya arms embargo. This follows our assessment that Libya has done all that we asked of it in respect of the complete abandonment of its weapons of mass destruction programs," Straw said.
But the WMD deal, announced in December and negotiated mainly by the United States, wasn't the only issue that needed to be resolved with Libya.
In March 2003, Libya reached a deal with the United States and Britain to accept civil responsibility for the bombing of a jetliner over Scotland in 1988. In August, Libya accepted responsibility for the Lockerbie bombing in a letter to the United Nations.
A month later, the UN Security Council lifted economic sanctions imposed on Libya in 1992. Diplomats say EU foreign ministers yesterday acted in accordance with that UN decision in suspending the bloc's economic sanctions.
Meanwhile, Libya worked to reach settlements with countries such as Germany that also suffered terrorist attacks backed by Tripoli.
All these developments led to some historic milestones.
Last March, British Prime Minister Tony Blair visited Tripoli; a month later, Libyan leader Muammar Ghadaffi was a guest at EU headquarters in Brussels. In June, the U.S. resumed diplomatic ties with Libya and recently ended its long-standing trade embargo with the North African nation.
Chris Patten, the EU's outgoing external relations commissioner, said the EU is now eager to put these past problems behind it.
"I think there's been a considerable improvement in Libya's cooperation with the international community. I think we've reached closure on some of the really awful incidents that happened in the past, and I hope it is now time to move on and find a better relationship with Libya," Patten said.
Still, EU officials say their decision to lift the sanctions involved other strategic calculations as well.
Libya is the only North African Mediterranean country yet to sign up to the EU's aid scheme known as the "Barcelona process." EU diplomats were reportedly eager to get Tripoli into the program, which they see as a kind of counter program to a similar U.S. initiative aimed at bringing democracy to the greater Middle East.
Then there's the immigration issue.
Italy is the main target for thousands of illegal immigrants crossing from Libya each month. Because Tripoli's cooperation is essential to stem that tide, Italy led the EU drive to end the arms embargo.
In particular, Rome is said to be interested in selling coast guard equipment to Libya to help it combat illegal immigration. Some 100,000 illegal immigrants are reportedly living in camps in Libya.
EU officials have shrugged off concern that Libya could use EU weapons and technology against illegal immigrants in ways that are incompatible with international law.
There are suggestions that by lifting the arms embargo, the EU gave up leverage that could have secured the release of five Bulgarian medics sentenced to death in Libya for allegedly infecting hundreds of children with the HIV/AIDS virus. Human rights groups allege Libya made up the story to hide unsafe practices in its hospitals and clinics.
However, officials in Brussels say lifting the arms embargo appeared to be less urgent for Ghadaffi than it was for the Italian government.
Meanwhile, as EU ministers lifted sanctions against Libya, they were unable to reach an agreement to end the bloc's 15-year embargo on selling arms to China.
France, arguing for improved strategic ties with Beijing, had pressured heavily for lifting the embargo.
But Dutch Foreign Minister Benard Bot, whose country holds the EU presidency, told reporters that ministers meeting in Luxembourg had agreed that more time is needed to reach a consensus.
"I stress that there is no linkage between the lifting of the arms embargo and human rights, but on the other hand we would welcome, of course, positive signals on the Chinese side, for example the ratification of the Convention on Civil and Political Rights, the release of prisoners who have been imprisoned after the  Tiananmen Square events," Bot said.
Officials in Brussels say the EU is only likely to lift the embargo once other, equivalent export control measures are in place. This is likely to occur sometime early next year.
The United States had lobbied strongly against lifting the arms embargo on China. It says ending the ban could undermine stability in East Asia and hurt efforts to improve human rights in China.
That view generally appeared to be shared by some EU members in Eastern Europe as well as Britain, Sweden, and Denmark.