US Secretary of State Hillary Clinton has announced that Washington will start the process of exchanging ambassadors with Burma.
The announcement came hours after most of the country’s political prominent dissidents were released from jail.
US President Barack Obama described the move as a “substantial step forward”.
The move is seen as one of the key demands of Western nations before international sanctions can be eased. The US stopped short of lifting them.
Mr Obama said he had asked officials to take “additional steps to build confidence” with Burma.
“Much more remains to be done to meet the aspirations of the Burmese people, but the United States is committed to continuing our engagement,” he said.