GENEVA, Aug 21, 2009 (AFP) - Swiss President Hans-Rudolf Merz's apology to Libya over the arrest last year of a son of Libyan leader Moamer Kadhafi triggered a political storm on Friday amid media claims of a "humiliation".

In an unusually terse statement, the Geneva regional government refused to climb down over the incident in July 2008, which occurred after two servants of Hannibal Kadhafi and his wife alleged they had been mistreated.

Geneva's State Council -- which has its own judiciary and police force under Switzerland's decentralised system -- openly clashed with the federal president.

It reaffirmed its backing for police actions and for "independent" judicial decisions last July.

The council also expressed concern about a decision by Switzerland and Libya to set up an arbitration panel in the case, warning that it would "resist any action that was not strictly in line with individual liberties."

The head of a federal parliament foreign policy committee, Dick Marty, a centrist senator, told the Swiss news agency SDA that there were "no grounds" for an apology.

The Tribune de Geneve newspaper accused Merz of bowing to a totalitarian state "while denying the principles of a constitutional state."

"The agreement between Switzerland and Libya owes more to a farce than to a diplomatic exploit," it commented.

Le Temps newspaper called the apology a "humiliation" and a measure of Switzerland's "impotence," while Le Matin lamented that Merz had "grovelled on every point."

Merz, who is also the finance minister, held a joint news conference in Tripoli with Libyan Prime Minister Baghdadi Mahmudi on Thursday to apologise to the Libyan people "for the unjust arrest of Libyan diplomats by Geneva police."

The Swiss finance ministry said the agreement was aimed at restoring bilateral relations and would also secure the release by September 1 of two Swiss businessmen in Libya who were banned from leaving the country.

But Marty expressed bewilderment at why Merz had not returned with the two men. "Switzerland shouldn't have given in on this," he added.

Libya responded to the arrest by suspending oil deliveries to Switzerland, withdrawing an estimated five billion euros from Swiss banks, ending bilateral cooperation and placing restrictions on Swiss companies.

In an editorial headlined "Kadhafi only speaks one language," the Neue Zurcher Zeitung called the apology a "bitter" but "necessary" pill to swallow to secure the freedom of the businessmen and restore bilateral relations.

"Switzerland is apologising to the leader of the Libyan revolution for the fact that in ... Geneva, all are equal before the law," it added.

The Kadhafi couple were freed after two days in custody on bail of 500,000 Swiss francs (312,500 euros, 444,000 dollars).

The complaint against them was dropped after a lawyer for their servants -- a Moroccan and a Tunisian -- said they had received compensation.

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Copyright AFP 2009.