Sudan's cabinet voted on Tuesday to repeal a 1958 law that forbade diplomatic and business relations with Israel, it said in a statement.
According to the statement, Sudan has also "reaffirmed its support for the establishment of a Palestinian state."
Sudan last year signed up to the Abraham Accords on regional reconciliation with Israel sponsored by the U.S. administration of then-president Donald Trump, and Israeli officials have visited Sudan.
One of those officials, Intelligence Minister Eli Cohen, welcomed Khartoum's move.
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"This is an important and necessary step toward the signing of a peace accord between the countries," Cohen said in a statement, which did not expand on when such an event might take place.
The decision still needs the approval of a joint meeting of Sudan's sovereign council and cabinet, which serves as Sudan's interim legislative body.
In January, Minister Eli Cohen led the first official delegation to Sudan to discuss moving forward on the U.S.-brokered normalization deal.
"I am confident this visit lays the foundations for many important collaborations that will assist both Israel and Sudan as well as security stability in the region," Cohen said in a statement after returning to Israel.
Cohen said he met with Sudanese leaders and that the Israeli delegation discussed with their hosts a variety of diplomatic and security issues as well as the potential for economic cooperation.
Senior Sudanese officials have given seemingly contradictory messages on the possibility of establishing formal relations with Israel, although such relations have existed in practice for some time, and even included an open meeting between Netanyahu and the leader of the transitional government Abdel Fattah al-Burhan during his visit to Uganda last year.
In December, the administration of former President Donald Trump removed Sudan from the U.S. list of state sponsors of terrorism, a move that could help the African country get international loans to revive its battered economy and end its pariah status.
Sudanese leaders have said explicitly that the United States removing it from a list of countries that support terror is their motivation for normalizing relations with Israel, although the U.S. has played down the link.