EDINBURGH, Scotland - A Scottish court on Tuesday allowed the Lockerbie bomber to drop an appeal against his conviction -- a step that could lead to the Libyan man's possible release or transfer to a prison in his homeland.

Libya wants the terminally ill Abdel Baset al-Megrahi sent home, but U.S. Secretary of State Hillary Clinton has urged Scotland to keep him in prison to serve out his 27-year sentence. Seven U.S. senators -- including Edward Kennedy and John Kerry -- also wrote to Scottish Justice Minister Kenny MacAskill with a similar request.

The senators said al-Megrahi should complete his sentence for "this heinous crime" in Britain.

The international agreement that brought the Libyan to justice "called for his sentence to be served in Scotland and we believe strongly there should be no deviation from this sentence," they said.

Al-Megrahi, 57, was convicted in 2001 of taking part in the bombing of Pan Am Flight 103 on Dec. 21, 1988. The airliner, which was carrying mostly American passengers to New York, blew up as it flew over Scotland. All 259 people aboard and 11 more on the ground died when the aircraft crashed into the Scottish town of Lockerbie.

A judicial review of al-Megrahi's case two years ago raised serious questions about the evidence used to convict him, spurring his appeal. But people with pending appeals cannot be transferred to another country, a fact that prompted al-Megrahi's request for permission to abandon his.

The Scottish court still has to hear a separate appeal by the government, which feels the bomber's 27-year minimum sentence is too short. A hearing on that is scheduled for Sept. 8.

The lead judge, Arthur Hamilton, urged state prosecutors to decide "without undue delay" whether to continue with their appeal.

MacAskill has said he will rule within two weeks whether to release the ailing al-Megrahi on compassionate grounds, transfer him to a Libyan prison, or keep him in a Scottish jail.

The prospect of al-Megrahi's possible release has sharply divided the British and American families of the victims. Some American familis argue that Libyan leader Moammar Gadhafi would feel vindicated if the convicted bomber were allowed to return to Libya.

"He should remain in prison," said Susan Cohen of Cape May Courthouse, New Jersey, whose 20-year-old daughter Theodora died in the attack.

"We've had very little justice in this case," she said.

"If al-Megrahi is released, there will be no tangible evidence left that this ever happened. It's kind of a way of obliterating it. Gadhafi will win and al-Megrahi will be a hero."

But relatives of some British victims want him to be released on compassionate grounds and to carry on with the appeal, which could have continued after al-Megrahi's death, as a way of uncovering more information about the bombing.

"The criminal inquiry is now ending in the worst possible way for the relatives and friends of those who died," said the Rev. John Mosey, whose daughter Helga died aboard Flight 103.

"We are left in limbo with a conviction, but now not the opportunity to hear for ourselves the evidence that convinced the Scottish Criminal Cases Review Commission that there was a possible miscarriage of justice."

Mosey said he was "85 per cent sure" al-Megrahi was not guilty. The Libyan's lawyers have argued the attack was the result of an Iranian-financed Palestinian plot.

Margaret Scott, Al-Megrahi's lawyer, told the court Tuesday that her client has advanced prostate cancer and had been given only months to live.

"This has now reached the terminal phase and he is in severe pain and in great distress," she said.

Though judges agreed Tuesday to remove one barrier to the prisoner's possible release, they said other legal obstacles remain. Al-Megrahi would not be eligible to be transferred to a Libyan jail until the government appeal is heard.

Some British media had reported that MacAskill could free al-Megrahi on compassionate grounds in time for the Muslim holy month of Ramadan, which begins Saturday. That would allow him to fly back to Libya a free man.

However, Scotland's government said Tuesday that no decision has yet been made.