Muammar el-Qaddafi has always seemed to rotate on his own axis of evil.

Those flowing robes, salon-style curls, bellboy’s hat and penchant for spending months in a desert tent made him seem goofy in comparison to Saddam Hussein, the Iranian ayatollahs and even North Korea’s Kim Il-Sung.

Time was, however, when the Libyan despot was the leading terrorist threat to U.S. citizens, bringing down passenger jets and blowing up a German discotheque frequented by American GIs, among other despicable acts.

When he renounced nuclear weapons last year, the Bush administration swiftly opened the door to normal diplomatic relations, locked for over two decades. Western oil companies rubbed their hands over drilling again in the Maghreb.

But while the terrorist attacks from Libya have stopped and the world is a far better place without Qaddafi’s nuclear ambitions, he’s still giving headaches and heartaches to hundreds of Americans who were victims of his murderous plots 20 years ago.

The struggle to get the Libyans to pay up for their sabotage of Pan Am 103, which exploded over Scotland in 1988, killing 270 passengers and crew, mostly Americans, is well known.

A less remembered case is the 1986 bombing of the La Belle discotheque in West Berlin, a club frequented by African -American GIs, which killed two U.S. soldiers and wounded 79 more, as well as scores of Germans.

In 2004, after a German court reaffirmed an earlier guilty verdict against three Libyan agents for the murder and maiming of its own citizens in the bombing, an avenue opened for the GI victims and their families to pursue Qaddafi for damages.

Thomas F. Fay, an attorney who represents 38 of the families, thought he had a settlement last year when the Libyans agreed to pay $3 million to each of the dead and wounded GIs’ families.

But when he flew to Paris last May to tie up the remaining details with the Libyans, news broke that Washington was removing the regime from its list of state sponsors of terrorism.

The Libyans called off the meeting.

In Fay’s view, the State Department had removed any incentive for the Qaddafi regime to pay up.

Then, last month, the Libyans suddenly presented Fay with what he calls “preposterous and outrageous” demands in exchange for settling.

One of the more bizarre of them, according to a May 3 letter Fay sent to members of the Senate Foreign Relations Committee, which was obtained by CQ, was that Fay and his clients “arrange for controls to be removed to enable Libya to purchase ‘lethal weapons’ in the United States.

Next on their wish list, “We were requested to arrange for licensing which would allow Libya to purchase nuclear materials,” Fay wrote.

More: “We were requested to use our influence to arrange for compensation to be paid to Libya by the United States for the dismantling of their weapons of mass destruction.”

And while you’re at it, the Libyans told Fay, “use [your] influence over [your] clients to have them request the United States government apologize” for killing 40 Libyans in an air raid that President Ronald Reagan ordered in retaliation for the discotheque attack.

Moving from the bizarre to the merely galling, the Libyans also demanded that each of the families that were promised $3 million in the earlier settlement “kick back,” as Fay put it, $500,000 each as a price for settling the case.

The rotund, veteran Washington lawyer chuckled during an interview in a downtown office last week, half in wonder, half in exasperation.

“I guess they think we’re part of the U.S. government.”

“I told the Libyan representatives,” he said in his letter to the Foreign Relations Committee, “that we had no power to do these things and would not under any circumstances recommend to our clients that they enter into any such arrangement.”

But Fay reserved his deepest disappointment for the White House and State Department.

“President Bush completely knocked the wheels from under this thing,” he said.

“When they took them off the terrorism list, that flatly threw the U.S. victims into the trash.”

On April 9, the Democrats’ two big national security guns in the Senate, Foreign Relations Committee Chairman Joseph R. Biden Jr. of Delaware, and Armed Services Committee Chairman Carl Levin of Michigan, complained to the State Department about the stalled La Belle case.

“Unfortunately, the issue seems no closer to resolution than it was last December,” when they queried Condoleezza Rice about the matter, their letter to Deputy Secretary of State John D. Negroponte said.

Last week, seven more Democrats on the Foreign Relations Committee, joined by Republican Norm Coleman of Minnesota (who is up for re-election in 2008) jabbed the State Department.

Their May 8 letter to Negroponte asked whether he had brought up the issue with Libyan officials during his April visit to Tripoli.

“Prior to your trip,” they reminded him, “we urged you to use the opportunity your visit presented to ‘send a strong message to Libya’s President Qaddafi that he must settle the remaining terrorism cases against his country before he can have fully normalized diplomatic relations with the United States.’”

In an April 23 press conference here, Negroponte said he had “raised” the La Bell and PanAm103 issues with the Libyans.

“Whether any progress will be achieved as a result of my having raised them, they certainly can have no doubt as to the importance of those issues to us and I think they took those points aboard,” he said.

But the Democrats want to hear more from Negroponte—in person.

Last month, while Negroponte was in Tripoli, the lawyers and the Libyans gathered in the Washington law offices of superfirm Patton, Boggs. A few State Department officials, who had helped set up the meetings, came to observe.

Over the course of the half dozen sessions, Fay and Jacob Stein, a Washington lawyer representing other La Belle claimants, became convinced that the Libyans still weren’t in any rush to settle the claims that they had agreed to last summer.

The Libyans were rude and insulting, according to three participants at the meetings.

At one point, one of them interrupted Fay with a sneer.

“Who are you?” he said contemptuously, according to two of the observers. “Are you a lawyer?”

At another point, the Libyan said of the black GIs killed in Germany, “These are just soldiers, they don’t deserve compensation.”

“I nearly jumped out of my chair and throttled the guy by the throat,” one of the Americans there said.

But sadly, Fay agrees, the GIs don’t have anywhere near the clout of the relatives of the Americans blown out of the sky over Lockerbie, Scotland.

“Most of the La Belle victims,” he rued in his letter to the Senate Foreign Relations Committee, “are working class people, who . . . were posted in Germany as American soldiers.”

“Still,” he added, “they have the same legal rights as the more affluent victims of PanAm 103 because they were victims of the same kind of state sponsored terrorism.”

The Libyans, as it turned out, were not officially from the Tripoli regime, but emissaries of the “Qaddafi Foundation,” which, in the kleptocracy that is Libya, is virtually the same thing. It’s headed by Qaddafi's son.

As if more evidence were needed, the Libyans told Fay that “compensation would be paid to American victims only when the Qaddafi Foundation received some more money with no set date of payment,” according to his letter to the Foreign Relations Committee.

A shake down, Fay saw it.

“I told them,” he recalled last week, “that the kick-back was illegal and immoral. It violated the Foreign Corrupt Practices Act” (a 1970s-era law that prohibits U.S. businesses from bribing foreign officials).

Throughout the La Belle negotiations, Fay alleges, U.S. officials have remained passive and unhelpful.

“The State Department appears to believe that support for American victims of Libyan terrorism would prevent them from functioning as an intermediary by placing the State Department in the position of supporting one of the parties,” he said in his letter to the committee.

“My view continues to be that the United States Department of State should never conduct itself in such a manner that it would occupy the position of ‘honest broker’ between any American citizen and the terrorist nation which attempted to murder that citizen.”

But the State Department, which was “outraged” by Fay’s letter, according to a knowledgeable source, has another view: The U.S. government shouldn’t be in the business of backing one set of private claims against a foreign government over another.

Furthermore, it has larger issues with Libya: support for a Darfur settlement, helping roll up al Qaeda, and nuclear nonproliferation.

And contrary to the charge that it has been neutral or passive, the source said, speaking candidly in exchange for anonymity, it has facilitated contacts between the parties and advised the Libyans to settle.

And the Qaddafi Foundation, he added, has proved to be a reliable vehicle for the Libyans and other groups to settle outstanding claims: keeping negotiations out of official channels gives them “political space” for a settlement.

Notwithstanding that Libya is a dictatorship, he said, Qaddafi has to “sell” his U.S. deals to his own domestic audience, just like Bush. So what Fay sees as a “kick back” to the Qaddafi Foundation for the victims of Reagan’s air strikes, he said, may be what’s needed to get the La Belle deal done.

But that’s up to the victims and the lawyers, he said, not the State Department.

The La Belle victims have heard enough — from the State Department and the Libyans. Their lawyers have filed suit in U.S. District Court here against the regime and individually named terrorists in the bombing.

“There are no negotiations,” Jacob Stein said by e-mail. Fay said the same.

The new, Democratic-controlled Senate Foreign Relations Committee, meanwhile, wants to hear more from Negroponte.

Last week it demanded a report from the State Department ”no later than” June 1, “on the specific actions that the Administration is taking and plans to take to move towards a resolution these remaining victims of terrorism cases.”

An advocate for the La Belle families, meanwhile, was furious over the lost time.

It could be years before the victims get their day in court, with no certainty the Libyans could ever be forced to pay.

“We were so close in Paris,” he said. “Then the Libyans just walked out the door.”

Jeff Stein can be reached at jstein@cq.com.