MONEY talks and terrorism walks, or so it seems when it comes to Libya.

Wielding a hefty checkbook, the Libyan government has offered a $2.7 billion mea culpa to the families of the 270 (including 189 Americans) killed in the 1988 Pan Am bombing over Lockerbie, Scotland.

Libya's eccentric leader, Col. Moammar Khadafy, best known for his desert populism, terrorist proclivities and flashy jumpsuits, is hoping the United Nations - and the United States - will lift sanctions against Tripoli, allowing the North African nation to tap into its vast, under-exploited oil reserves (the world's fifth-largest).

Many of Khadafy's oil fields lie idle due to economic sanctions imposed in the early 1990s because of his support of international terrorism. It's costing him billions. Lifting sanctions on the "Mad Dog of the Middle East" (as President Reagan called Khadafy) is a very risky proposition. Here's why:

* Weapons of Mass Destruction: According to the CIA, Libya is trying to develop both chemical and biological WMDs. Even more alarming, Tripoli is in hot pursuit of nukes, with the help of Russia and Pakistan. The Libyans have a ballistic-missile program, assisted by North Korea, Iran and China. Now under development is the Libyan al Fattah missile, which will be able to reach Italy, Greece and Turkey.

In 1999, Khadafy turned over a couple of his stooges for trial in the Lockerbie bombing; in return, the United Nations suspended its sanctions. That has enabled Libya to accelerate its biological, chemical and ballistic missile programs. (The United States maintained its sanctions.)

* International Terrorism: Libya is one of six countries on the State Department's list of state sponsors of terrorism. (The others are North Korea, Iran, Cuba, Syria and Sudan.) The country has a long history of support for terrorist groups in the Middle East and more than 30 other groups worldwide, including the Basque ETA, the Colombian M19, the Italian Red Brigades and the IRA, to name a few. Khadafy's thugs killed two American servicemen in a Berlin disco bombing in 1986 and brought down a French airliner in Africa three years later.

* African Dictators: Khadafy has played an important role in propping up some of the continent's worst dictators, including Zimbabwe's brute Robert Mugabe. Tripoli played a prominent role in arming, training and hosting African guerilla fighters, including former Liberian President Charles Taylor. Libyan arms helped Taylor gain control of the Sierra Leonean diamond fields in an ugly civil war, allowing Taylor to ultimately launder al Qaeda cash into diamonds. As recently as last month, Taylor is reported to have visited Libya in order to restock on arms and ammunition.

* Human Rights: Libya is one of the most repressive regimes in the world - right up there with North Korea and Iran. Since coming to power in a 1969 coup, Khadafy has built up a reputation as one of Africa's most brutal dictators.

Let's face it: Khadafy has not undergone some sort of conversion from sinner to saint, his claims to the contrary notwithstanding. (He says he supports the war on terror.) We can only imagine what Khadafy would do with a couple of extra dinars in his jumpsuit pocket. Good works aren't likely to be high on his to-do list.

Khadafy has been trying to get into America's good graces for years because the sanctions hurt and have sent the Libyan economy into a downward spiral. Fortunately, Libya's economic doldrums have limited the evil deeds Khadafy can underwrite. He is a wolf in sheep's clothing.

Washington shouldn't let Khadafy publicly redeem himself by writing a few oil checks. It would send the wrong message to other state sponsors of terror, especially the world's most active sponsor, Iran. And it would badly undermine U.S. policy in combating the threats posed by rogue regimes and the proliferation of WMD.

If Khadafy wants redemption, Libya must permanently halt its support for terrorism, end its WMD programs, open its political system and improve its human-rights record. Justice for Khadafy's victims is what is required - not a get-out-of-jail free card. Until then American - and U.N. - sanctions should remain iron cast.

Peter Brookes is a senior fellow for National Security Affairs at the Heritage Foundation (heritage.org).