President Bush Friday lifted sanctions against Pakistan that were imposed following the 1999 bloodless coup that brought President Pervez Musharraf to power.
A White House statement says President Bush decided to lift the sanctions because it will "facilitate the transition to democratic rule in Pakistan" and help in efforts to fight international terrorism.
Pakistani cooperation was key to U.S. military action against the Taleban government in neighboring Afghanistan and al-Qaida terrorists thought responsible for the September 2001 attacks in New York and Washington.
Pakistan also holds one of the key undecided votes in the U.N. Security Council where the United States, Britain, and Spain need six more votes to pass a resolution threatening "serious consequences" against Iraq if it does not disarm.
With that resolution facing a French and Russian veto, administration officials now say it may be withdrawn without a vote.
President Bush had already lifted many of the sanctions against Pakistan. His decision Friday removes the final sanctions ahead of a White House meeting later this month with the Pakistani prime mMinister of a civilian parliament which was restored after general elections in November.