Effectively managing security policies in a large distributed Web Services environment is the key to secure e-business transactions. Security policy must ensure the end-to-end agreement for many-to-many interoperation; ensure the versioning interoperability and privacy of collaborating partners; and ensure the dynamic establishment of security policies because any statically defined security policy tends to be unsecured after a certain period of time. The traditional security policy configuration mechanisms, either the local configuration mechanism or the centralized configuration mechanism, cannot fully meet the above requirements.In this paper we describe a solution for managing security policies in a collaborative Web Services environment. This solution is based on ebXML CPP/CPA model and uses Interoperability Contract Document (ICD). It allows the collaboration parties to establish security policy dynamically for each individual interoperation; makes the selected policy confidential; and addresses the software, message, and policy versioning and interoperability issues. Our experience reveals the advantages of this approach over others.