The US has 50 to 60 detainees whom it has been unable to repatriate
The Pacific nation of Palau says it has agreed to a US request to temporarily resettle up to 17 Chinese Muslims.
The 17 men are ethnic Uighurs, now being held at the Guantanamo Bay detention centre on Cuba, and the US has asked for help to re-settle them.
Their fate was problematic due to fears for their safety if they were repatriated to China.
Palau, a former US trust territory, grants diplomatic recognition to Taiwan, not China.
Palau President Johnson Toribiong said his government had "agreed to accommodate the United States of America's request to temporarily resettle in Palau up to 17 ethnic Uighur detainees ... subject to periodic review."
In a statement, he said his tiny country is "honoured and proud" to resettle the detainees, who have been found not to be "enemy combatants."
He said the agreement was a "humanitarian gesture", which had nothing to do with the upcoming review of the Compact of Free Association under which the US gives large sums to Palau.
US officials asked Mr Toribiong on 4 June to accept some or all of the 17 Uighur detainees due to strong US congressional opposition to releasing them on US soil.
Guantanamo Bay officials have been attempting to fulfil US President Barack Obama's order to close the detention facility by early next year.
Palau, with a population of about 20,000, is an archipelago of eight main islands plus more than 250 islets that is best known for diving and tourism and is located some 800 km (500 miles) east of the Philippines in the Pacific Ocean.
The US will not send the Uighurs back to China for fear they will be tortured or executed. Beijing says Uighur insurgents are leading an Islamic separatist movement in China's far west and wants those held at Guantanamo to be returned to China.
Analysts said the fact that Palau is an ally of Taiwan, not China, could have helped the negotiations.
In 2006, Albania accepted five Uighur detainees from Guantanamo but has since balked at taking others, partly for fear of diplomatic repercussions from China.
Australia has already twice rejected US appeals to resettle the Uighurs.
Palau has retained close ties with the United States since independence in 1994 when it signed a Free Compact of Association with the US. It relies heavily on the US for aid and defence.