The European Union said on Monday sanctions against Zimbabwean President Robert Mugabe and members of his inner circle will remain in force until a "peaceful and credible" constitutional referendum has been held.
The 27-member bloc said it will lift most sanctions on Zimbabwean firms and individuals once the country held the vote on a new constitution.
A statement by EU foreign ministers says they have also agreed to resume direct aid to Harare after a 10-year suspension.
The ministers, who met in Brussels, said once the constitutional referendum is organized, sanctions would be lifted on most of the 112 Zimbabweans under an EU asset freeze and travel ban imposed in 2002.
EU diplomats said the sanctions on President Mugabe would remain intact.
Speaking soon afterwards, the EU’s Ambassador to Zimbabwe, Aldo Dell'Ariccia said Zimbabwe would now be able to trade with EU countries, but, he added, the ban on weapons remains in place.
President Mugabe and those who remain on the sanctions list will still not be able to travel to EU countries unless they are attending United Nations meetings.
The EU imposed sanctions on Mr. Mugabe and his inner circle in 20002 accusing the Zanu PF government of massive rights abuses, political violence and election rigging.
Ambassador Dell'Ariccia said the EU's decision was informed by progress being made in implementing the Global Political Agreement of power sharing by Zimbabwe’s unity government.
Geoffrey Van Orden, an MEP who has spearheaded the EU parliament’s campaign for freedom and democratic change in Zimbabwe, was cautiously optimistic about developments.
"Just as in Burma we have responded to a change of heart and real progress towards democratic change, so we must now recognize the possibility of positive developments in Zimbabwe," said Van Order.
"We have always said that restrictive measures, aimed solely at a governing elite that has trampled on the people of Zimbabwe, could be eased once there was serious change.
"There are indications that this will now happen and we need to be prepared to move accordingly. if there is any backward step then restrictive measures can be re-imposed and intensified.”
Meanwhile, the Australian Broadcasting Corporation reports that Prime Minister Morgan Tsvangirai has urged Australia to scrap sanctions it imposed on Harare.
The Prime Minister held a meeting with his Australian counterpart, Julia Gillard early Monday.
The station quoted Australian Trade Minister Craig Emmerson as saying his government would listen to Mr. Tsvangirai’s advice.
UK Foreign Affairs Secretary, William Hague says the EU's decision demonstrates its seriousness about responding to concrete progress on the ground in Zimbabwe.