Swiss irked Libya pledge to free citizens not kept

* Swiss "disappointed" at Libya

* Problem started with arrest of a son of Gaddafi in 2008

ZURICH, Oct 22 (Reuters) - Switzerland criticised Libya on Tuesday for failing to keep its promise to free two Swiss businessmen after Zurich apologised for the brief detention last year of Muammar Gaddafi's son.

Swiss President Hans-Rudolf Merz apologised in Tripoli in August and was told the businessmen would be granted exit visas in return, a pledge reiterated on the sidelines of the U.N. General assembly in New York last month. [ID:nLO120274]

The two have been blocked from leaving Libya since July 2008, days after Swiss police arrested Hannibal Gaddafi on charges -- later dropped -- of beating and mistreating two domestic employees while staying in Geneva.

"The Federal Council is disappointed that Libya is not fulfilling its promises," Merz told a news conference after a special meeting of the seven-member Swiss government.

Swiss Foreign Minister Micheline Calmy-Rey said they were looking at next options, but did not elaborate.

"Libya is systematically refusing any cooperation and has also taken the two Swiss citizens hostage, violating international laws," she said.

Merz -- who is serving a one-year term as president, a largely ceremonial role, and is also finance minister -- has come under heavy fire for the deal, especially now that the Libyans have failed to follow through.

After Hannibal Gaddafi and his pregnant wife Aline were arrested in a Geneva hotel, Libya cut oil supplies to Switzerland and withdrew more than $5 billion in assets from Swiss banks.

Geneva's prosecutor dropped the case last year when the employees withdrew their formal complaint after reaching an undisclosed settlement with the Gaddafis. (Reporting by Sven Egenter; Editing by Sonya Hepinstall)