By James Cusick, Westminster Editor

GORDON Brown has backtracked on threats made by him in a letter to Colonel Gadaffi, in which the Prime Minister warned the Libyan leader that a hero's welcome for the Lockerbie bomber in Tripoli would jeopardise UK relations with the north African state.

The letter was personally delivered in Tripoli to the Libyan prime minister by the UK's ambassador, Sir Vincent Fean, just after Megrahi's plane had left Glasgow. Brown warned Libya not to treat Megrahi as a returning hero, a request which was effectively ignored.

Gadaffi also defied the will of the UK and the USA by holding a televised meeting with Megrahi, who was hugged by the Libyan leader.

There are also plans now in train to make Megrahi the star of the forthcoming 40th anniversary celebrations of Libya's military coup and revolution.

The PM's letter contained what an FCO source described as a "diplomatic threat put in the nicest terms".

The threat described how Megrahi being politically lionised would put at risk the commercial, business and scientific bi-lateral progress that had grown between the two countries since the 2007 accord brokered by Tony Blair.

In one large deal alone, up to $20bn of oil and gas investment is being planned by BP in the coming years as exploration, both on and offshore, accelerates.

Brown's letter is said to have made clear that Britain "seriously" believed such bilateral agreements would be in danger if Libya offered a public hero's welcome to Megrahi.

However, Westminster is now backing away from any punitive action as there are currently no plans at the Foreign Office to punish Libya, with the FCO now saying there is only a "watching brief".

Although Washington is said to have wanted some form of diplomatic reprisal from Britain, they will now be disappointed.

Lord Mandelson effectively closed the book on any action against Libya for ignoring Brown's request, saying yesterday there will be "no repercussions".

Gadaffi himself clearly believes he has nothing to worry about after describing Brown as "my friend" and offering his thanks to the prime minister in helping secure the release of Megrahi.

In place of any fear of new sanctions, Gadaffi said Megrahi's release would "benefit" relations between the UK and Libya, and this would be "positively" reflected in "all fields" of co-operation.