Serbia and Kosovo have signed an agreement at the White House on normalising economic relations, giving President Donald Trump the opportunity to claim a new diplomatic victory for his administration.
Mr Trump hailed what he called a "major breakthrough" more than a decade after Kosovo declared independence from Serbia in 2008.
Speaking in the Oval Office with the leaders of both countries, the US President said Serbia had also committed to moving its embassy to Jerusalem.
Kosovo and Israel also agreed to normalise ties and establish diplomatic relations.
Serbian President Aleksander Vucic told reporters there were still many differences between Serbia and the breakaway province, but the new agreement marked a huge step forward.
Kosovo Prime Minister Avdullah Hoti said the agreement should lead to mutual recognition between the two countries.
"Serbia and Kosovo have each committed to economic normalisation," Mr Trump said. "By focusing on job creation and economic growth, the two countries were able to reach a major breakthrough."
The announcement came after two days of high-level talks among the leaders and senior White House aides, and follows close on the heels of last month's historic agreement between Israel and the United Arab Emirates to normalise ties.
Ethnic Albanian-majority Kosovo declared independence from Serbia in 2008 after a NATO-led bombing campaign to curtail ethnic warfare.
Serbia, backed by its large Slavic and Orthodox Christian ally Russia, does not recognise Kosovo's independence, a precondition for Belgrade's future membership in the European Union.
The two countries remain bitter over a bloody war fought two decades ago, in which 13,000 died.
