Mr. Bush's remarks alluded to the Iraq war that toppled Saddam Hussein over his alleged possession of weapons of mass destruction, and were apparently aimed at North Korea and Iran, still suspected of seeking and developing banned weapons.
British Prime Minister Tony Blair and Mr. Bush, in back-to-back appearances late Friday in Britain and at the White House, announced that Libyan leader Moammar Gadhafi had agreed, after nine months of secret talks, to halt his nation's drive for such weapons and the long-range missiles to deliver them.
The series of negotiations and on-site inspections by U.S. and British experts were initiated by the long-reviled Gadhafi in March, shortly after he agreed to a settlement in the 1988 bombing of a Pan Am jetliner over Lockerbie, Scotland.
The result, Mr. Bush and Blair said, was that Libya agreed to disclose all its weapons of mass destruction and related programs and to open the North African country to international weapons inspectors to oversee their elimination.
Libya's most significant acknowledgment was that it had a program intended to enrich uranium for use in nuclear weapons, a senior Bush administration official said.
Libya's nuclear effort was more advanced than previously thought, said the official, who briefed reporters at the White House on condition of anonymity. U.S. and British experts inspected components of a centrifuge program to enrich the uranium, but did not see a fully operational system, the official said.
Teams of American and British experts went to Libya in October and December, the official said. The Libyan news agency Jana Tripoli quoted Foreign Minister Abdel-Rahman Shalqam as saying Libyan experts had shown their U.S. and British counterparts "the substances, equipment and programs that could lead to production of internationally banned weapons."
The experts visited 10 sites related to Libya's nuclear program, the official said.
In London, CBS News Correspondent Mark Phillips reports a high-ranking government official said Gaddafi was close to developing such weapons.
The American and British team also was shown a significant amount of mustard agent, a World War I-era chemical weapon. Libya made the material more than a decade ago, and had bombs that could be filled with the substance for use in combat, the U.S. official said.
Libya also acknowledged having chemicals that could be used to make nerve agent. The official said there was little evidence of a biological warfare program.
Libyan officials further acknowledged contacts with North Korea, a supplier of long-range ballistic missiles, and provided the U.S.-British team access to missile research and development facilities.
However, the official said several "remaining uncertainties" about Libya's programs exist even after all the disclosures.
"The announcement by Lybia to allow international weapons inspectors and to abandon its weapons of mass destruction programs clearly reflects the chilling impact of the arrest of Saddam Hussein, the invasion of Iraq and Libya's longstanding interest in having U.S. and U.N. sanctions removed," said CBS News Foreign Affairs Analyst Pamela Falk.
"The payment of compensation to the U.S. victims of the Pan Am Lockerbie was just a part of the overall negotiations of Col. Gadhafi to rejoin the West," Falk continued.
Mr. Bush said the United States and Britain, wary of Libyan promises, would watch closely to make sure Gadhafi keeps his word. And he said Libya's promises on weapons aren't enough; it must "fully engage in the war against terror" as well.
If Libya "takes these essential steps and demonstrates its seriousness," Mr. Bush held out the promise of helping it build "a more free and prosperous country." Neither he nor aides provided specifics.
Gadhafi's moves were "statesmanlike and courageous," British Foreign Secretary Jack Straw told British Broadcasting Corp. radio on Saturday.
Britain restored diplomatic relations with Libya in 1999 after a 15-year hiatus and has been involved in negotiations to end the country's international isolation. The United States, which retained its 17-year embargo, has Libya on its list of nations that sponsor terrorism.
"The United States is looking forward to an entirely new approach and relationship with Libya," Straw said. On sanctions, he said: "I would expect them to be lifted. I can't say exactly when."
The U.N. Security Council ended sanctions against Libya on Sept. 12 after Gadhafi's government took responsibility for the Pan Am bombing and agreed to pay $2.7 billion to the victims' families.
But the United States has kept its own 17-year embargo in place and has kept Libya on the list of nations that sponsor terrorism.
"As we have found with other nations, old hostilities do not need to go on forever," Mr. Bush said. "Libya can regain a secure and respected place among the nations and, over time, achieve far better relations with the United States."
In a statement carried by the Libyan news agency, Gadhafi called his move a "wise decision and a brave step that merit support from the Libyan people."
Senior U.S. officials said the Pan Am 103 families were briefed before Mr. Bush's announcement. But Susan Cohen of Cape May Courthouse, New Jersey, whose daughter was among the 270 people killed in the bombing said Gadhafi cannot be counted on to keep his promise.
"How can we trust somebody who has blown up a plane?" she said.
It was the second foreign policy victory for Mr. Bush in a week, after last weekend's capture of Saddam. He said his action against the Iraqi leader, as well as U.S. efforts to rein in weapons pursuits by North Korea and Iran, "have sent an unmistakable message to regimes that seek or possess weapons of mass destruction" and played a role in Gadhafi's decision.
The president sought to nudge other regimes with both the threat of "unwelcome consequences," if weapons pursuits are not abandoned, and the offer - if they are - of "an open path to better relations with the United States and other free nations."
"I hope that other leaders will find an example in Libya's announcement today," Mr. Bush said. "When leaders make the wise and responsible choice ... they serve the interest of their own people and they add to the security of all nations."
The move represents a shift for a nation long regarded as an outlaw.
While Libya is credited with moderating its behavior in recent years, Gadhafi has been depicted as an erratic, untrustworthy ruler. In 1986, President Reagan sent American warplanes to bomb the Libyan cities of Tripoli and Benghazi in retaliation for the bombing of a Berlin disco where a U.S. serviceman was killed.
The bombs struck Gadhafi's barracks and killed his young, adopted daughter and wounded two of his sons. Gadhafi, sleeping in a tent outside the compound, escaped injury.