By Salah Sarrar

TRIPOLI, July 11 (Reuters) - Libya's Supreme Court will rule on Wednesday on an appeal by six foreign medics sentenced to death for infecting hundreds of Libyan children with the HIV virus following a report of a deal for their release.

The highly politicised case of the five Bulgarian nurses and a Palestinian doctor has blocked Libya's efforts to deepen links to the West after shaking off decades of isolation in 2003 when it scrapped its programme of prohibited weapons. Word of the deal to secure the medics' release from eight years in detention emerged late on Tuesday when Libya's Gaddafi Foundation charity said it had reached an accord with the children's families that "puts an end to the crisis".

"This accord satisfies all the parties," the foundation said in a statement, adding details would be announced in due course.

Representatives of the families could not immediately be reached for comment on the reported deal, which if confirmed will be a crucial step in securing the medics' freedom.

In Sofia, Bulgarian deputy Foreign Minister Feim Chaushev said: "We do not have information about the talks... We have not been informed about any agreement. If they have indeed reached an agreement, that is a very encouraging sign."

The six medics were sentenced to death in December after being convicted of infecting 426 Libyan children with the deadly virus while they worked at the children's hospital in the city of Benghazi in the 1990s.

In jail since 1999, they say they are innocent and were tortured to make them confess. Some Western scientists say negligence and poor hospital hygiene were the real culprits and that the six were made into scapegoats.

The six have appealed to the Supreme Court. If the court confirms the conviction, as some expect it to, the case will go to a government-controlled High Judicial Council which will have the power to commute the sentence or even pardon them.

Libyan officials say the Council would only agree to the release of the nurses if a settlement were reached in private talks between the families and the European Union (EU) on funding for the children's medical care.

TALKS

Behind the scenes talks have been taking place between the EU and the association of the families of the children on just such a possible deal -- to provide a fund of tens of millions of dollars for the families to pay for the children's future care.

Libya calls the cash "compensation" -- a term Bulgaria rejects as it says it implies the medics are guilty.

The families have asked for 10 million euros ($13.3 million) for each child, far in excess of what observers say the EU has been prepared to pay. The Gaddafi Foundation charity, run by a son of Libyan leader Muammar Gaddafi, Saif al-Islam, has been a central player in facilitating the talks.

Bulgaria and its allies in Brussels and Washington have all been trying to win their release, and failure to free the nurses would carry a diplomatic cost for Libyan leader Muammar Gaddafi.

U.S. President George W. Bush has written to Gaddafi saying further strengthening of ties with Washington hinges on resolving outstanding issues between the two countries, White House spokesman Scott Stanzel said on Tuesday.

Bush's letter was handed to Gaddafi by senior White House aide Frances Townsend on visit to Tripoli on Monday.

Stanzel cited international demands for the release of the medics among the hurdles Libya has to clear to improve further its relations with the U.S.

Although judge Fathi Dhan stated three weeks ago that the court will deliver the verdict on Wednesday, lawyers and law experts said the outcome may not be as clear as confirming the death sentences or releasing the six foreign medics.

"The judge can confirm the death sentences or come up with another idea," said Othman Bizanti, a lawyer for the nurses.

Ramadane Fitouri, a legal expert, said: "All indications point towards a confirmation of the death sentences but the court could have another decision."

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