(Updates with reaction from Lockerbie relatives, Libya, Scotland)
By Hadeel Al Shalchi and Ali Shuaib
TRIPOLI, May 20 (Reuters) - Abdel Basset al-Megrahi, the Libyan convicted of the 1988 bombing of a PanAm flight over Lockerbie, died of cancer on Sunday aged 60, leaving many questions on the attack and its aftermath unanswered.
Megrahi, who said he was not responsible for bringing the jumbo jet down on the Scottish town and killing 270 people, was found guilty in 2001 but was freed in 2009 and returned to Libya because he had terminal cancer and was not expected to live long.
Megrahi's brother Mohammed told Reuters he had died at his home in the Libyan capital from complications from prostate cancer and the funeral would take place on Monday.
"He was too sick to utter anything on his deathbed," another brother, Abdulhakim, said. "Just because Abdul Basset is dead doesn't mean the past is now erased," he said. "We will always tell the world that my brother was innocent."
The decision by officials in Scotland to return Megrahi to Libya angered relatives of many victims, 189 of whom were American, and was criticised by Washington as Megrahi returned to a hero's welcome from Muammar Gaddafi.
That he survived for nearly three more years, outliving Gaddafi, who was overthrown last year, caused discomfort in Britain. Prime Minister David Cameron, visiting the United States on Sunday, said Megrahi should never have been freed.
Scottish leader Alex Salmond said his death confirmed his medical condition had been serious. "Mr Megrahi's death ends one chapter of the Lockerbie case, but it does not close the book," he said, noting Scottish lawyers were seeking other suspects.
Megrahi, the only person convicted for the bombing, was found guilty under Scots law of secretly loading a suitcase bomb onto a plane at Malta's Luqa Airport, where he was head of operations for Libyan Arab Airlines in December 1988.
The suitcase was transferred at Frankfurt to another flight and then onto New York-bound PanAm Flight 103 at London's Heathrow airport, concluded Scottish judges sitting at a converted Dutch military base selected as a neutral trial venue.
All 259 people aboard the aircraft were killed when it exploded and 11 people in the small town of Lockerbie died when homes and vehicles were obliterated by falling debris.
Megrahi, handed over by Gaddafi under a U.N.-brokered deal, always insisted he was merely an airline executive, not a Libyan intelligence agent as prosecutors charged.
His trial was part of a process of rapprochement by which Gaddafi distanced himself from association with groups regarded as terrorists in the West and secured renewed cooperation with Western firms keen to exploit Libya's oil and gas reserves.
Reaction to Megrahi's death reflected the controversies that have raged for years over his role.
Many people in Britain say they believe he was a scapegoat, while many in the United States have accused Britain of releasing him to help secure oil deals in Gaddafi's Libya. Britain has denied the charge.
U.S. Senator Charles Schumer of New York, who wanted the Libyan government that took over after Gaddafi's ouster and killing by rebels to take Megrahi into custody, said his return to Libya was a major injustice.
"The whole deal smelled of a deal for oil for this man's freedom and that was almost blasphemy given what a horrible person he was and the terrible destruction and tragedy that he caused," Schumer told CNN.
"I don't know if we'll ever get to the bottom of it now."
British Prime Minister David Cameron, who was in opposition when Megrahi was freed, said in Chicago: "I've always been clear he should never have been released from prison.
"Today is a day to remember the 270 people who lost their lives in what was an appalling terrorist act. Our thoughts should be with them and their families for the suffering they've had."
Jim Swire, the father of one of the British Lockerbie victims, said he was convinced Megrahi was innocent.
"I've been satisfied for some years that this man had nothing to do with the murder of my daughter and I grit my teeth every time I hear newscasters say 'Lockerbie bomber has died'" he told BBC News television. "This is a sad day."
Megrahi told Reuters in October the West had exaggerated his role and the truth about what happened would emerge soon.
Babette Solon Hollister, 79, whose 20 year old daughter died on the PanAm flight said: "I don't know if he was totally guilty but we know he was involved ... I doubt anything will be resolved now."
Libya's National Transitional Council (NTC), which ousted Gaddafi last year, has said it would work with the Scottish government over the possible involvement of others in the 1988 bombing, an attack the country's new rulers are eager to distance themselves from.
"We would have liked to uncover more truths, but his death will not shut the Lockerbie file," NTC spokesman Mohamed al-Harizy said on Sunday.
Gaddafi's Libya emerged from isolation after it scrapped a banned weapons programme and paid compensation for the Lockerbie bombing.
Megrahi was handed over by Libya with fellow suspect Al-Amin Khalifa Fahima under a U.N.-brokered deal. Fahima was acquitted by the Scottish judges at Camp Zeist in January 2001.
Megrahi was jailed in the town of Greenock, near Glasgow.
On Sunday, his neighbours in the Libyan capital rolled out a carpet and set up chairs in the courtyard outside his house in preparation for condolence visits by family and friends.
"My brother was surrounded by his wife, children and his mother as he took his last breath," his brother Abdulhakim said. (Additional reporting by Lin Noueihed in Tunis, Olesya Dmitracova in London and Lily Kuo in New York, Adrian Croft in Chicago and Bill Trott in Washington; writing by Philippa Fletcher; editing by Alastair Macdonald)