The Clinton administration threatened today to veto an initiative by non-aligned countries to lift U.N. sanctions on Libya as a reward for Tripoli's pledge to forsake terrorism and cooperate in the trial of suspects in the 1988 bombing of Pan Am Flight 103.

Libya, nevertheless, continued its emergence from diplomatic isolation, announcing the resumption of diplomatic ties with Britain after a 15-year break. And U.S. officials left open the possibility of improved American relations with the government of Moammar Gadhafi.

Peter Burleigh, acting U.S. representative to the United Nations, said that despite Washington's threat of a veto in the Security Council, the United States acknowledges that Libya has improved its behavior in recent months. He added that Washington is prepared to vote in favor of a statement that "welcomes" Libya's cooperation, "with a view to lifting" the sanctions eventually. Burleigh said it would be premature to lift sanctions before Libya has fully cooperated with a trial by a Scottish court, temporarily operating in the Netherlands, of two Libyan intelligence agents charged with planting the bomb that destroyed Flight 103 over Lockerbie, Scotland. Some 270 people, mostly Americans, died in the bombing.

The unusual trial, which results from arduous negotiations and numerous compromises, is scheduled to begin in February 2000.

Burleigh said Libya also needs to compensate the families of the victims and to demonstrate that it has cut all links with terrorist groups.

"There have been positive developments. I want to be clear about that, in particular the handing-over of the two accused in April," he said. But, he added, "Our position is that it is premature to ask for a lifting of sanctions."

In 1992, the U.N. Security Council first imposed an embargo on Libyan arms sales, air travel and the sale of some oil industry equipment in response to Tripoli's refusal to surrender the two suspects to stand trial in Britain or the United States.

In a compromise struck in April, Libya surrendered the suspects to the Scottish court in the Netherlands. The Security Council responded by suspending the embargo, a move that essentially allows Libya to resume full economic and diplomatic ties with the outside world. But the Clinton administration, facing criticism from some of the victims' relatives that it has gone soft on Libya, has opposed formally lifting the sanctions.

The Security Council debate coincided with a joint announcement by Britain and Libya that they would resume diplomatic relations, which were severed after the alleged 1984 shooting by Libyans of a British policewoman outside the Libyan Embassy in London.

Britain's Foreign Minister Robin Cook said the agreement came after Tripoli agreed to cooperate in an investigation into the shooting and pay compensation to the family of the victim. He said Britain will appoint an ambassador to Libya as "quickly as possible."