Victims of the 1982 Sabra and
Shatila massacre had filed a case
US-based Human Rights Watch (HRW) said Brussels had managed to salvage something from the law but too many concessions were made to Washington.
"It is regrettable that under irrational pressure from the United States the Belgian government is renouncing fundamental principles," said the group.
Belgium decided to amend its 1993 "universal competence" law, which gives Belgian courts the right to judge anyone accused of war crimes, crimes against humanity or genocide, no matter where the acts were allegedly committed.
It is the second time this year the law is changed, after coming under fierce US criticism for the legislation.
Under the latest amendment, the law will only be applicable in cases where victims or perpetrators were linked to Belgium.
Brussels said it would not repeal the law.
The revised law would probably be ratified on Monday, reported state Belgian radio RTBF. Belgian Prime Minister Guy Verhofstadt said the legislation would be modifed so it does not apply to democratic countries.
HRW said while the main body of the law was left intact it would reduce its scope by being relevant only to Belgian nationals.
"To exclude a complaint that questions the actions of a democratic country is going too far," said HRW official Reef Brody.
"Israel is a democracy and guarantees the right to a fair trial," he said. "But that does not mean the victims of Sabra and Shatila in Lebanon in 1982 will necessarily got justice," said Brody.
During Israel's 1982 invasion of Lebanon Christian militiamen went on a two-day rampage in the Palestinian refugee camp, slaughtering at least 1,000 civilians.
Then Israeli Defence Minister Ariel Sharon was found "indirectly responsible" for the atrocities by the Kahan Commission and was forced to resign.
Scores of legal cases have been filed in Brussels against world leaders. US President George W Bush and British Prime Minister Tony Blair face allegations of war crimes in the war against Iraq.
“Many of the lawsuits were not justified,” said Belgian Foreign Minister Louis Michel. “In each of these lawsuits there was a harassing effect or nature towards an allied country or towards a democratic country,” he said.
Details of the agreement have not yet been made public.
Brussels faced a fierce US campaign to change the law. Pressure from Washington has already prompted Brussels to amend the law once before, allowing courts to refer cases back to the defendant’s home country.
Charges had been filed against
Bush for alleged crimes in Iraq
The move greatly reduced the possibility of cases ever appearing in court.
But Washington said the measure was insufficient, saying US leaders were still at risk of what they described as politically-motivated prosecutions.
Under the law, allegations have been filed against US Secretary of State Colin Powell, Defence Secretary Donald Rumsfeld, Deputy Defence Secretary Paul Wolfowitz and National Security Advisor Condoleeza Rice.
The law has aggravated ties between Brussels and Washington.
Rumsfeld has threatened to freeze spending on the North Atlantic Treaty Organisation’s (NATO) new headquarters in Brussels, unless the law was revoked.
The list of leaders facing legal cases under the law have included Israeli Prime Minister Ariel Sharon. A "reprisal" case was subsequently filed against Palestinian President Yasser Arafat.
The only convictions under the legislation so far have been those of four Rwandans found guilty in 2001 of taking part in the 1994 genocide in their homeland in which about one million people died.