LONDON: Britain on Saturday rejected any suggestion that it had struck a deal with Libya to free the Lockerbie bomber — after questions arose when Moammar Gadhafi embraced the man convicted of killing 270 people and publicly thanked British officials.

Gadhafi praised Prime Minister Gordon Brown and members of the royal family by name for what he described as influencing the decision to allow the terminally ill Abdel Baset al-Megrahi to return home to die. Thousands greeted al-Megrahi at the airport as he arrived in Tripoli after being freed Thursday from a Scottish prison.

But British officials insisted they did not tell Scottish justice officials what to do — and in any case, they could not, because the decision was not theirs' to make.

"The idea that the British government and the Libyan government would sit down and somehow barter over the freedom or the life of this Libyan prisoner and make it form part of some business deal .... it's not only wrong, it's completely implausible and actually quite offensive," Business Secretary Peter Mandelson told reporters in London.

Britain has walked a fine line in the issue, as the government in London must distance itself from local affairs in Scotland. While outraged at the jubilant reception al-Megrahi received in Libya, British leaders have refrained from criticizing the decision to free him, which was made in Edinburgh under Scotland's separate judicial system.

Scottish Justice Secretary Kenny MacAskill decided to release al-Megrahi on compassionate grounds because the Libyan has prostate cancer and was given only months to live by top British doctors. Compassionate leave for dying inmates is a regular feature of Scottish justice.

In Washington on Saturday, FBI Director Robert Mueller blasted MacAskill for allowing the Lockerbie bomber to return home, saying the decision made "a mockery of justice" and gave comfort to terrorists around the world.

President Barack Obama earlier called the decision "highly objectionable."

In an insult to those in London hoping for restraint, Gadhafi hugged the only man convicted of the 1988 bombing in a meeting Friday and al-Megrahi kissed the Libyan leader's hand as the cameras rolled.

Libyan television showed pictures of Gadhafi singling out Brown, as well as "the Queen of Britain, Elizabeth, and Prince Andrew, who all contributed to encouraging the Scottish government to take this historic and courageous decision, despite the obstacles."

A Buckingham Palace spokesman said Saturday the release was "entirely a matter for the Scottish government." The official spoke on condition of anonymity in keeping with palace policy.

Gadhafi's embrace fueled outrage that has simmered at al-Megrahi's reception in Libya, where joyful celebrants threw flower petals as the 57-year-old former Libyan intelligence agent stepped down from the jet.

British Foreign Secretary David Miliband on Friday condemned the scenes as "deeply distressing."

But the constant stream of videos on the Gadhafi hug and the kiss have only added to the woes of Britain's leaders. Mandelson left the hospital Saturday after a prostate operation only to find a scrum of reporters demanding answers about an alleged deal. He insisted that London and Tripoli did not negotiate.

To further drive home the point, Brown released the text of a letter he sent to Gadhafi urging that al-Megrahi's return be treated as "a purely private family occasion."

"A high-profile return would cause further unnecessary pain for the families of the Lockerbie victims. It would also undermine Libya's growing international reputation," Brown wrote.

While Britain does have oil interests in Libya — notably a $900 million exploration deal between BP PLC and Libya's National Oil Co. — they are small compared to investments by Italy's Eni SpA.

Even so, Gadhafi's son, Seif al-Islam Gadhafi, said al-Megrahi's release was a constant point of discussion during trade talks. In comments aired on the Libyan television station he owns, he said those discussions stretched back to former Prime Minister Tony Blair's government.

"In fact, in all the trade, oil and gas deals which I have supervised, you were there on the table," Gadhafi's son told al-Megrahi. "When British interests came to Libya, I used to put you on the table."

Blair, who resigned in 2007, told CNN on Saturday that the Libyans did raise the issue of al-Megrahi but he told them he did not have the power to release the bomber.

Mandelson agreed with Blair.

"This goes back very many years," he said. "The Libyan government and representatives of Libya have always raised the issue of this prisoner."

Al-Megrahi was convicted in the bombing of Pan Am Flight 103 over Lockerbie, Scotland. The explosion of a bomb hidden in the cargo hold killed all 259 people on the plane and 11 on the ground in Britain's worst terrorist attack.

His trial at a special Scottish court set up in The Netherlands, which came after years of diplomatic maneuvering, was a step toward normalizing relations between the West and Libya, which spent years under U.N. and U.S. sanctions because of the Lockerbie bombing.

Although Libya has accepted formal responsibility for the attack over Scotland, many in his homeland see al-Megrahi as an innocent victim scapegoated by the West.

Al-Megrahi has maintained his innocence even as he dropped his appeal so that he could be released from prison.

His lawyers have argued the attack was the result of an Iranian-financed Palestinian plot, and a 2007 Scottish judicial review of al-Megrahi's case found grounds for an appeal of his conviction.

During an interview published Saturday in the Times of London, al-Megrahi said he had abandoned the appeal to spend what time he had left with his family. He promised to release what he described as evidence that would exonerate him — but offered no details.

"There was a miscarriage of justice," he was quoted by the Times as saying.

In the interview, al-Megrahi told the Times he understood that the families of many Lockerbie victims were furious, but he appealed for understanding.

"They believe I'm guilty, which in reality I'm not," he told the Times. "One day the truth won't be hiding as it is now. We have an Arab saying: The truth never dies."