The US has announced that it is lifting a ban on millions of dollars' worth of aid to Yugoslavia, because of Belgrade's improved co-operation over war crimes suspects.

The aid was cut off on 31 March to try to force Belgrade to hand over more of the suspects indicted by the war crimes tribunal in The Hague.

I think this is an important step forward in relations between our two countries

Colin Powell

After a meeting in Washington with Serbian Prime Minister Zoran Djindjic, US Secretary of State Colin Powell announced that the aid, worth $40m, was being unblocked.

Several war crimes suspects have handed themselves over to the tribunal in the past few weeks, after Belgrade set a new deadline for their surrender.

However, the tribunal's most wanted suspects - Radovan Karadzic and Ratko Mladic - remain at large.

We have removed an obstacle to our relations

Zoran Djindjic

Belgrade's economy, shattered by years of war and sanctions, was in desperate need of the financial boost, and other economic aid which will also now be unlocked.

Mr Powell said new laws passed in Belgrade, as well as the surrender of the suspects, had influenced his decision. He also praised the transfer of ethnic Albanian prisoners from Serbian custody to the United Nations.

"Earlier this morning, I signed a certification required under US law that we have been receiving the necessary co-operation from the authorities in Belgrade with respect to the International Criminal Tribunal," Mr Powell said.

"I think this is an important step forward in relations between our two countries," he added.

Loan progress

The US decision will also mean Washington throwing its weight behind loans to Yugoslavia from the World Bank and International Monetary Fund.

Mr Powell had called from early April for Belgrade to provide greater help to the tribunal if it wanted the aid to start flowing again.

Laws boosting co-operation were subsequently passed in Belgrade.

Five suspects have since surrendered, and arrest warrants have been issued against more than a dozen others, including Mr Karadzic and General Mladic.

Mr Powell said the pressure would continue for tribunal prosecutors to be given full access to Yugoslav archives.

Mr Djindjic declared himself "very satisfied" with the meeting

We take this as an acknowledgment for what we did in the last year and a half. You can be sure that this will continue

Yugoslav Foreign Minister Goran Svilanovic

"We have removed an obstacle to our relations," he said.

Yugoslav Foreign Minister Goran Svilanovic, who also attended the meeting, told reporters: "We believe that we are on a good path to really have a new, redefined relationship between our two countries.

"We take this as an acknowledgment for what we did in the last year and a half. You can be sure that this will continue."

He said he hoped that trade links between the US and Yugoslavia would now be normalised.

Human rights groups criticised the decision to end the freeze, saying it had come too soon.

One group, Human Rights Watch, said Belgrade was still not doing enough to release archive material to tribunal prosecutors.