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.
Analysis: Barbara Plett Usher, BBC Washington
The decision follows a formal review process but the timing is political. Cuba's designation was a holdover from the Cold War when it supported leftist guerrilla movements in Latin America.
In recent years, however, the State Department had been regularly challenged to produce an "active verb" on Cuba in its annual terrorism report. Some congressmen continued to stress that Havana was still harbouring a number of US fugitives.
But there was no formal opposition during the 45 day notice period, and Cuba's removal from the terrorist blacklist is the most potent symbol of détente so far.
Practically however Congress has refused President Obama's request to lift the longstanding embargo. So there will be little impact on economic ties with America, although crucially Washington's decision to "rehabilitate" Cuba does remove barriers to international financing.
This process is technically separate from that of re-establishing diplomatic relations but the Cubans linked the two, and an announcement on re-opening embassies is now expected in the coming weeks. Only then begins the hard work of trying to normalise relations between two countries with a complex history and radically different political systems and worldviews.
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".
Mr Obama ordered a review of Cuba's presence on the list as part of his major policy shift announced on 17 December.
The department said that Mr Obama notified the US Congress of his intent to remove Cuba from the list on 14 April.
Lawmakers had 45 days to take issue with his decision - a period that lapsed on Friday.
The US government had maintained that Cuba has sheltered members of the Basque separatist group ETA and the Farc guerrilla group in Colombia, according to a government report.
The Caribbean nation has frequently rejected its presence on the list, describing it as unfounded.
The country - which lies 90 miles off the coast of Florida - was on the list since 1982. The current list includes Syria, Iran and Sudan.
Stonegate Bank of Florida has agreed to allow members of the Cuban government to open an account, according to US media reports.