The UN Security Council on Thursday eased sanctions against Iraq imposed after Saddam Hussein's 1990 invasion of Kuwait amid a significant thaw between the neighbors.
The council lifted the threat of action linked to the search for Kuwaitis and property missing since the invasion ordered by the former dictator.
Iraq's Foreign Minister Hoshyar Zebari called the unanimous council vote a "landmark" in Iraq's efforts to restore its international image.
An international coalition ended the occupation of Kuwait in 1991 and a US-led invasion toppled Saddam in 2003. Iraq was ordered, however, to pay compensation and to help find more than 600 Kuwaitis missing since the invasion.
Kuwait backed resolution 2107 under which the missing people and property will now be handled under Chapter VI of the UN Charter, which calls for a peaceful resolution of disputes.
They had previously been dealt with under Chapter VII of the charter, which allows for sanctions and military intervention to enforce council demands.
The sanctions threat remains for Iraq's payment of war compensation. The UN also still has an arms embargo against Iraq under Chapter VII.
Iraq was ordered to pay just over $52 billion to its neighbor. Iraq says it still owes about $11 billion and that the debt will be fully paid in 2015.
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The resolution acknowledged "the importance of Iraq achieving international standing equal to that" before the 1990 invasion and also welcomed Iraq's "demonstration of its commitment to the full implementation of its outstanding obligations."
UN leader Ban Ki-moon called for the sanctions to be eased in a recent report. He said both governments have shown "statesmanship and respect" in their efforts to heal the war wounds.
Zebari paid tribute to the Kuwaiti government for its "support and assistance" to get the sanctions regime changed and vowed to increase cooperation with Kuwait.
"All the negative aspects of relations between the two countries have become another page of the past and we shall focus on the present and the future," he said.
Zebari said the council vote "will be a landmark, a milestone, in the history of the relationship between Iraq and the international community."
US Secretary of State John Kerry also called the Security Council vote a "milestone decision" in a statement which congratulated both countries on overcoming the acrimony of the past two decades.
"It's testament to the commitment of two neighbors to a new relationship," said Kerry, who was in Kuwait on Wednesday and who offered US support to their efforts "to build further confidence and cooperation, strengthen their relationship, and enhance regional stability."
Kuwait is maintaining demands that Iraq account for more than 600 Kuwaitis who went missing in the conflict. The remains of 236 have so far been found. It is also demanding efforts by Iraq to return national treasures and archives.
Regular flights between Baghdad and Kuwait started this year however, and Kuwait's Prime Minister Sheikh Jaber Mubarak al-Sabah went on a surprise one-day visit to Baghdad this month in a key sign of the thaw.