The US State Department has recommended that Cuba be removed from its list of states said to sponsor terrorism, a leading member of the Senate Foreign Affairs Committee says.
Senator Ben Cardin called the move "an important step".
Meanwhile, US Secretary of State John Kerry and Cuban Foreign Minister Bruno Rodriguez have held talks in Panama.
The discussions were the highest level meeting between the two nations in more than half a century.
The US State Department tweeted a photo of the two men shaking hands on the sidelines of the 35-nation Summit of the Americas.
US President Barack Obama is also expected to meet Cuban leader Raul Castro at the summit - the first time the two will meet formally.
Cuba is one of four countries still on the US list of countries accused of repeatedly supporting global terrorism; Iran, Sudan and Syria are others.
Cuba was first put on the list in 1982 for offering sanctuary to militant ETA Basque separatists and Colombian Farc rebels.
"The State Department's recommendation to remove Cuba from the list of state sponsors of terrorism, the result of a months-long technical review, is an important step forward in our efforts to forge a more fruitful relationship with Cuba," Senator Cardin said.
The move could lead to the two countries reopening embassies and easing financial restrictions on Cuba's access to loans and aid.
If Mr Obama opts to accept the state department's recommendations, Congress would have 45 days to decide whether to override him.
He faces fierce critics of his Cuban policy at home, such as from Cuban-American Ted Cruz, who is a Republican presidential candidate.
Correspondents say removing Cuba from the list of state sponsors of terrorism will throw a stark light on the US's relations with Venezuela.
The Venezuelan President Nicolas Maduro hopes to bring a petition signed by 10 million of his citizens urging Mr Obama to remove an order imposing sanctions against seven Venezuelan officials accused of human rights abuses in an opposition crackdown.
Oil-rich Venezuela has many friends at the summit and other Latin American nations have criticised the order, which calls Caracas a US national security threat.
President Obama has tried to reduce tensions with Venezuela ahead of the summit, saying the US did not perceive the country as a threat.
"But we do remain very troubled by the Venezuelan government's efforts to escalate intimidation of its political opponents," he told the Spanish news agency EFE.
Source: BBC