US officials say the decision could also set in motion steps by Sudan toward establishing diplomatic relations with Israel.
US President Donald Trump has said he was ready to remove Sudan from a US blacklist of state sponsors of terrorism, a major goal of Khartoum, after a compensation deal over past attacks.
The decision was contingent on Sudan following through on its agreement to pay $335 million to US terror victims and families.
The announcement came after Treasury Secretary Stephen Mnuchin was in Bahrain to cement the Gulf state’s recognition of Israel.
It came as the Trump administration pursues further Arab recognition of Israel.
Delisting Sudan from the state sponsors blacklist is a key incentive for the Sudanese government to normalise relations with Israel.
"At long last, JUSTICE for the American people and BIG step for Sudan!" Trump wrote on Twitter on Monday.
GREAT news! New government of Sudan, which is making great progress, agreed to pay $335 MILLION to U.S. terror victims and families. Once deposited, I will lift Sudan from the State Sponsors of Terrorism list. At long last, JUSTICE for the American people and BIG step for Sudan!— Donald J. Trump (@realDonaldTrump) October 19, 2020
Trump to tout new diplomatic achievement
Earlier on Monday, two US officials said the Trump administration was close to an agreement with Sudan to remove Khartoum from the US list of state sponsors of terrorism.
The deal could also set in motion steps by Sudan toward establishing diplomatic relations with Israel, one of the officials told Reuters, following similar US-brokered moves in recent weeks by the United Arab Emirates and Bahrain.
But details were still being worked out, the source said.
Rapprochement between Israel and another Arab country would give Trump an opportunity to tout a new diplomatic achievement as he seeks re-election on November 3.
Cooperation on counter-terrorism
Sudan's designation as a state sponsor of terrorism dates to its toppled ruler Omar al Bashir and makes it difficult for its transitional government to access urgently needed debt relief and foreign financing.
Many in Sudan say the designation, imposed in 1993 because the United States believed Bashir’s government was supporting militant groups, is now undeserved since Bashir was removed last year and Sudan has long cooperated with the United States on counter-terrorism.
A key sticking point in US-Sudan talks has been Sudan's insistence that any announcement of Khartoum's de-listing not be explicitly linked to normalisation with Israel.
Differences remain between Sudanese political and military officials on how far and how fast to go in warming of relations with Israel.
Sudanese Prime Minister Abdalla Hamdok told US Secretary of State Mike Pompeo in Khartoum in August the normalisation issue should not be linked to Sudan’s removal from the terrorism list.
One possibility, one US official said, would be for Washington to first announce Sudan's delisting and then leave it to Sudan and Israel to go public later with an agreement on establishing relations.
The UAE and fellow Gulf state Bahrain in September became the first Arab states in a quarter of a century to sign agreements to have formal ties with Israel, forged largely through shared fears of Iran.
Asked whether an Israel-Sudan breakthrough was imminent, Israeli Finance Minister Israel Katz told Israel's Army Radio, "There are contacts, accompanied by the Americans, and there is complexity. I hope that the intensive contacts will yield positive fruit."
Negotiations related to Sudan's deposit in escrow of a $335 million settlement to victims of Al Qaeda attacks on US embassies in Kenya and Tanzania in 1998 are expected to conclude in the next two days, one of the US government sources said.
After that, the Trump administration would notify Congress of its intent to remove Sudan from the list.