When Abdurahman Alamoudi was stopped by British authorities last August as he boarded a flight from London to Syria with $340,000 inside a valise, Western government officials were skeptical about his odd explanation that a Libyan official had handed him the money without a word in a London hotel room.

U.S. agents initially believed that the prominent American Muslim activist had planned to take the money to Syria and give it to the Islamic Resistance Movement, the Palestinian group also known as Hamas that sponsors suicide bombings against Israelis.

But now Alamoudi, who is being held at an Alexandria jail facing 34 counts related to the alleged cash smuggling, is sketching out even more extraordinary allegations for U.S. officials. Alamoudi has revealed a plot by Libyan leader Moammar Gaddafi to assassinate the head of the Saudi government, Crown Prince Abdullah -- a plan in which Alamoudi took part, according to U.S. law enforcement officials and other informed sources.

Lawyers for Alamoudi, a pillar of Northern Virginia's Muslim community, are negotiating a plea agreement with the government in the hope that their client can avoid the life sentence he could face if convicted on all the original charges, sources said.

Alamoudi, 52, whose account is corroborated by a Libyan intelligence official -- Col. Mohamed Ismael, who is in Saudi custody -- has told U.S. officials that he twice met with Gaddafi late last spring and last summer, and that both times the Libyan leader told him to speed up the plot to kill Abdullah, according to several people familiar with the case.

During the very months last year when Gaddafi was allegedly hatching this plan, he was also negotiating with British and U.S. officials to renounce terrorism and end his weapons-of-mass-destruction programs, the sources said. Gaddafi announced that he was terminating the secret weapons projects in December, by which time U.S. officials were aggressively pursuing allegations about the assassination effort.

Asked about the affair yesterday, President Bush told reporters that "we're going to make sure we fully understand the veracity of the plot line. . . . When we find out the facts, we will deal with them accordingly. . . . I have sent a message to [Gaddafi] that if he honors his commitments to resist terror and to fully disclose and disarm his weapons programs, we will begin a process of normalization, which we have done."

Libyan Foreign Minister Abdel-Rahman Shalqam yesterday denied the allegations "completely and categorically." The Saudi government declined to comment.

State Department spokesman Richard Boucher said yesterday that even before Gaddafi swore off nuclear weapons on Dec. 19, Washington had heard reports "that Libya was in contact with Saudi dissidents who have threatened violence against the Saudi royal family. We raised those concerns directly with the Libyan leadership, and they assured us that they would not support the use of violence for settling political differences with any state."

Bush and his top aides have pointed repeatedly to Libya as a U.S. foreign policy success at a time when some of the administration's most important international projects are on shaky ground. Asked about the White House's continued support for Gaddafi, one U.S. official said the intelligence community is divided on the strength of the evidence on the alleged plot.

"It's a murky business," the official said. "We're being rather circumspect about the whole thing because we just don't know."

U.S. and Saudi officials are trying to interview at least two of Alamoudi's U.S. associates, who apparently are overseas, officials said. Washington and Riyadh are also pressing British officials to intensify their investigation of Saad Faqih, a radical Saudi dissident in London who U.S. officials suspect played a role in the Libyan conspiracy. In an interview yesterday, Faqih denied any connection to the plot.

Without a plea agreement, Alamoudi could face life in prison if he is convicted on all charges. His trial is scheduled to begin in August on charges including violating U.S. sanctions by taking money from a nation designated as a terrorist state, attempting to launder money and lying to officials when he denied ties with Hamas.

Alamoudi attorney James P. McLoughlin Jr. confirmed that his client "is cooperating with the government in its investigation.'' A person familiar with Alamoudi's thinking said that Alamoudi became involved in the plot for money, not out of a desire to see the Saudi ruler assassinated, and that he doubted the plot would lead anywhere.

"We are at a very delicate stage in the investigation," one U.S. law enforcement official said.

Authorities hope that word of Alamoudi's cooperation with the government will encourage those who had worked with him in support of Hamas and other extremists to volunteer information to investigators, one law enforcement official said.

"Now that everyone knows Alamoudi is talking, subjects of other investigations may come in," the official said. "They know he has a lot to tell us."

News of the investigation has shocked Muslim activists who worked closely with Alamoudi, the founder of numerous U.S. Islamic groups including the American Muslim Council, and an occasional White House visitor during the Clinton and current administrations.

The plot, first disclosed yesterday by the New York Times, began in May 2003, when Alamoudi met in Libya with Gaddafi, who said he wanted Abdullah killed, according to Alamoudi's account, the sources said. At a meeting in June, Gaddafi asked Alamoudi why there had not been any "heads flying" in the Saudi royal family, the sources said.

Later last year, Ismael and Alamoudi were in touch with Saudi dissidents in London, who helped locate men in Saudi Arabia willing to join an assassination plot that involved the use of small arms or rocket-propelled grenades, according to people familiar with the case.

Ismael subsequently traveled to Egypt, where he was arrested by security officers. On Nov. 27, Saudi participants who had been recruited by Ismael were arrested at a hotel in Mecca as they waited to receive cash payments from their Libyan handlers.

Among the people under investigation in Britain is Faqih, the dissident leader who has had close contacts with Saudi extremists and jihadists for years but who professes to embrace only peaceful reform, officials said. Yesterday, he acknowledged having known Alamoudi for years but denied being funded by him or by Ismael.

U.S. authorities first learned of allegations that Libyans were working with militant Saudi dissidents in November, eight months after Libya approached the British government about ending its weapons programs. The Americans raised concerns about those allegations in December, during the weapons negotiations in London.

Libya ultimately allowed U.S. authorities to remove its nuclear components and opened its doors to international inspectors. Early this year, Assistant Secretary of State William Burns discussed "the issue of using violence for political means" with Gaddafi in Tripoli, according to Boucher.

In April, Bush eased economic sanctions, opening the door to U.S. oil companies, banks and other investors to resume business that had been prohibited since 1986.

The Bush administration remains confident about Libya's cooperation on eliminating its illicit weapons programs. U.S. authorities hauled out large amounts of equipment from Libya, including tons of uranium-enrichment equipment, now under lock and key in Tennessee.

U.N. inspectors have gone from town to town in the desert nation in search of information about Libya's scientific and manufacturing capabilities. They have concluded that Libya's nuclear program was quite limited and now seems to pose little danger.

Staff writers Susan Schmidt, Mary Beth Sheridan, Jerry Markon and Dana Milbank contributed to this report.