The United Nations Security Council has unanimously approved a revised US-UK resolution on Iraq's future.
The issue of control of foreign troops was a key obstacle
The vote in the 15-member council came after countries that had voiced reservations about earlier versions expressed backing for the latest draft.
The resolution sets out the powers and constraints for the new interim Iraqi government, due to take over power from the US-led coalition on 30 June.
President Bush welcomed the vote as a "great victory for the Iraqi people".
UK Prime Minister Tony Blair described the resolution as "a milestone for the new Iraq", while Russian President Vladimir Putin said it was "a major step forward" for the Iraqi people.
The French Ambassador to the UN, Jean-Marc De Sabliere, said it was important that "the political process continues in Iraq", stressing that it was now "up to the Iraqi government to win the confidence of the Iraqi people".
One sticking point was the issue of an Iraqi veto on US-led military action.
The agreed resolution stresses the new government will assume full sovereignty when it takes power.
It will have the power to send home the US-led foreign troops - although that is not expected to happen.
But the government does not have the explicit power to veto individual military operations.
The BBC's Jon Leyne, at the UN, says the unanimous vote is the clearest sign of a new-found unity in the international community over this most divisive issue.
The resolution 1546/2004 also:
- states that by 30 June 2004 the occupation will end, the Coalition Provisional Authority will cease to exist
- envisages direct democratic elections to a Transitional National Assembly no later than 31 January 2005
- provides for full partnership between Iraqi forces and the multinational force
- firmly place[s] Iraqi security forces under Iraqi control
The vote came a day after London and Washington agreed to include more details about the relationship between the new Iraqi government and US-led forces - after two weeks of intense discussions.
The French and Germans wanted the document to say that the consent of the Iraqis would be required for sensitive military operations.
The Americans and British would not go this far - but the resolution included references to a full partnership.
It says future Iraqi governments will be consulted on "the full range of fundamental security and policy issues, including policy on sensitive offensive operations".
The resolution still does not spell out who will have the last say on the issue, although Washington has repeatedly stated that its troops in Iraq would be under American control, the BBC's Susannah Price in New York says.
Shortly before the vote, Iraqi Foreign Minister Hoshyar Zebari told the BBC that the new resolution would allow for closer co-operation on key security issues.
"What we are talking about here is really major offensive military operations that would have serious political consequences like Falluja," he told Radio Four's Today programme.
"We believe that we as Iraqis understand the situation better on the ground."