Slovenia says it is ready to lift its block on Croatia's bid to join the European Union.
The announcement came after talks between Prime Minister Borut Pahor and his Croat counterpart Jadranka Kosor.
They also said they had agreed that a continuing 18-year-old border dispute would not prejudice Croatia's accession talks with the EU.
Slovenia had blocked Croatia's EU negotiations since December because of the border dispute.
Prime Minister Pahor said the government would immediately propose to parliament that "Slovenia removes restraints for Croatia's EU negotiating process".
For her part, Croatia's prime minister said she had faxed a letter to the Swedish EU presidency saying they had "reached an agreement on the continuation of talks with the EU and continuation of the border talks".
"No document can be prejudicial to the final border solution," Ms Kosor added.
Croatia had hoped to complete accession talks with the EU this year, and become the 28th member of the bloc by 2010 or 2011.
The border row dates back to 1991, when the two countries declared independence from the former Yugoslavia.
The dispute centres mainly on the small bay of Piran in the Adriatic Sea.
Croatia has wanted the border to be drawn down the middle of the bay.
But Slovenia, which has a much shorter coastline than its neighbour, fears this would deny its ships direct passage to the high seas.
Last December, Slovenia vetoed a large chunk of the talks, saying Croatia had provided maps and documents in the EU negotiations that would have prejudged a solution to the border dispute.
The two prime ministers said on Friday talks on the border issue would continue with international mediation, Reuters news agency reports.