The United States has removed Cuba from its list of state sponsors of terrorism.
The move eliminates a major obstacle toward restoring diplomatic ties.
The change allows Cuba to conduct banking in the United States, among other activities.
President Barack Obama announced a historic thaw with Cuba in December, but the US trade embargo against the country remains, and may only be ended by Congress.
The removal has been one of Cuba’s key demands, as leaders from both countries have repeatedly met to negotiate the details of restoring diplomatic relations, including the opening of embassies in Washington and Havana.
The action comes as signs of difficulty were seen in recent talks between US and Cuban diplomats.
Last week, diplomats met in Washington, but failed to come to an agreement on opening embassies.
The BBC’s State Department Correspondent Barbara Plett Usher says the removal will give Cuba greater access to sources of international financing that were previously denied.
“The United States has significant concerns and disagreements with a wide range of Cuba’s policies and actions,” the State Department said in a statement. But those concerns, it said “fall outside the criteria relevant to the rescission of a State Sponsor of Terrorism designation”.