By Ali Shuaib
TRIPOLI (Reuters) - Swiss President Hans-Rudolf Merz apologised to the Libyan government on Thursday for the brief detention last year of a son of Libyan leader Muammar Gaddafi, clearing the way for a return to normal diplomatic ties.
"We are apologising for what happened to Hannibal Gaddafi and the two sides agreed to form a committee to discuss the matter," Merz told reporters in Tripoli on an unannounced one-day visit.
Merz and Libyan Prime Minister Al-Baghdadi Ali Al-Mahmoudi said the countries had agreed on a "normalisation" of their relationship.
That would also mean two Swiss nationals prevented from leaving Libya in the wake of last year's incident would be granted exit visas, the Swiss government said.
Merz made the apology on the same day as Scottish authorities released a Libyan jailed for the 1988 Lockerbie bombing that killed 270 people -- a move viewed by many as an important step to soothe relations between Britain and Libya.
The dispute with Switzerland began when Hannibal Gaddafi and his pregnant wife Aline were arrested in a Geneva hotel in July 2008 on charges of mistreating two domestic employees. Armed police forced open their hotel suite after being alerted to repeated altercations.
Libya cut oil supplies to Switzerland and withdrew more than $5 billion (3.02 billion pounds) in assets from Swiss banks.
Geneva's prosecutor dropped the case in September last year when plaintiffs withdrew their formal complaint after reaching an undisclosed settlement with the Gaddafis.
Charles Poncet, a Geneva lawyer representing Libya in a 500,000 Swiss franc ($469,500) civil suit against Swiss authorities, said Tripoli's conditions had been met.
"This outcome is what the Libyan government has been asking for since August 2008, that is to say an apology and the setting up of an international arbitration tribunal," he said on Swiss television.
A hearing on the civil suit scheduled for next month would "certainly be withdrawn," Poncet told the Swiss news agency ATS.
A Swiss statement said Switzerland was prepared to apologise for the "unseemly and unnecessary" arrest of Gaddafi and his family.
"Both countries agree to set up independent arbitration to investigate the circumstances of the arrest of Hannibal Muammar Gaddafi and his wife," the statement said. Swiss television, citing a two-page agreement between the two countries, said the arbitration panel would be based in London and composed of three judges.
It also said the 24-year-old Moroccan brother of one of Hannibal Gaddafi's domestic employees involved in the Geneva incident has been missing since reporting to the Libyan police in July 2008, days after the arrest, following pressure on the family.
The two Swiss who were refused permission to leave Libya will be free to go "in the next few days," the government said.
Swiss officials have identified one of the two as Max Goeldi, director of Swiss-Swedish electrical engineering conglomerate ABB in Tripoli, but have declined to identify the other.
(Additional reporting by Stephanie Nebehay in Geneva; Writing by Tom Pfeiffer; Editing by Robin Pomeroy)
