Libyan leader Muammar Gaddafi advised President Barack Obama on Wednesday to give Osama bin Laden a chance to reform, telling the new President that America's most wanted man was looking for "dialogue".

Col. Gaddafi hailed what he called "positive signals" so far from the new Obama administration, including plans to close the US prison at Guantanamo Bay, Cuba.

Speaking to students at Georgetown University via a satellite link-up from Libya, Col. Gaddafi said Washington must review its approach to bin Laden, who is blamed for the September 11, 2001 attacks and tops the US Most Wanted List.

"Terrorism is a dwarf not a giant. Osama bin laden is a person who can be given a chance to reform," Col. Gaddafi said through an interpreter. He gave no indication that he had any contact with Mr bin Laden or wanted to act as a go-between.

"Maybe we can have a dialogue with him and find out the reason that led him in this direction," he added. Moreover, he said the Taliban, which the US helped oust in Afghanistan, was "not as it has been portrayed" and Washington should review its views on that group too.

In a speech outlining his views on how to resolve the Israeli-Palestinian conflict, Col. Gaddafi called for the creation of one state rather than two nations living side by side.

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