Blair is expected to announce the return of the UK-owned British Petroleum (BP) oil company to Libya, heralding new economic ties with Gadhafi's regime.
BP PLC has said it is in "constructive talks with the Libyan government," but will not release further details of a planned deal ahead of a formal announcement.
Since the country emerged from international isolation by agreeing to scrap its nuclear weapons programme and compensate victims of terrorist attacks, Western firms have rushed to sign exploration deals.
Blair's efforts to bring Gadhafi into the international fold in 2004 had caused discomfort in the UK, amid memories of the Lockerbie air disaster, when Libyan agents allegedly brought down a Pan Am airplane over Scotland in 1988, killing 270.
The decision to travel to Tripoli and shake hands with Gadhafi in a desert tent in 2004 was "highly controversial, but it was the right thing to do," Blair's official spokesman said while speaking on condition of anonymity in line with government policy.
Libya improved its international image with a 2003 promise to scrap its weapons of mass destruction programme and play a role in pan-African moves on climate change and Darfur, he said.
Gadhafi has agreed to scrap his chemical weapons stockpile by the end of 2010. British experts are aiding the work and helping Libyan weapons scientists turn their expertise to radiological medicine, the foreign office said.
In turn, Tripoli has cleared hurdles for the UK to deport suspected Libyan terrorists back to their homeland, signing a 2005 "memorandum of understanding" with Britain in 2005 – a legal document promising not to torture the men.
But the policy was dealt a severe blow in April, when an appeal judge rejected the legality of the assurances, upholding claims from two Libyans that they could face violence if deported. Both men were ordered to be freed from custody.
The British government has said it is aware of concerns about human rights in Libya and doubts over the systems of government and justice, but believes that it is crucial to continue developing ties, Blair's spokesman said.
Blair is likely to use the African tour, which will also include visits to Sierra Leone and South Africa, to gain support for greater pressure on Sudan over the Darfur conflict.