The net effect is to begin to reverse more than two decades of estrangement.
"Today, I am announcing a step that will enable Americans to purchase and import carpets and food products such as dried fruits, nuts and caviar from Iran," Secretary of State Madeleine Albright said in the prepared text of a speech to the American-Iranian Council.
Without apologizing, Albright acknowledged past American meddling in Iran, including the CIA-backed coup that toppled Iran's leftist Prime Minister Mohammed Mossadegh and restored its monarchy in 1953.
In announcing the move, Albright said the action was designed to show Iranians that "the United States bears them no ill will."
The change in policy by the Clinton administration to relax food sanctions, lift the ban on the import of luxury goods, and propose a settlement of financial claims, is a bid to encourage the reformist movement underway in Tehran.
Recent parliamentary elections have begun to shift the balance of power away from hard-liners who dominated Iranian politics for years and who continue to call the United States the "Great Satan."
"We want to work together with Iran to bring down what President (Mohammad) Khatami refers to as the 'wall of mistrust.'" She added: "The possibility of a more normal and mutually productive relationship is there. But it will not happen unless Iran continues to broaden its perspective of America, just as we continue to broaden our view of Iran."
Albright said the administration has "no illusions" that the United States and Iran will be able to overcome their hostility overnight. "We can't build a true relationship on carpets and grain alone," she said.
In fact, in her speech, Albright reiterated U.S. allegations hat Iran sponsors terrorism, seeks weapons of mass destruction and persecutes religious minorities.
She said the projected trial next month of 12 Jews in Shiriz accused of espionage would be a barometer of how policy in Iran is taking shape.
"It's too early to know precisely where the democratic trends will lead," Albright said referring to the recent parliamentary elections. But, she said, "We have concluded the time is ripe to broaden our perspective."
She wished the Iranian people a happy new year and added: "Surely, the time has come for America and Iran to enter a new season in which mutual trust may grow and the quality of warmth supplant the long cold winter of our mutual discontent."
Trade in oil, oil equipment and other major economic areas will remain prohibited for Americans.
Some analysts have questioned whether an easing of sanctions would elicit a response or simply amount to a unilateral U.S. concession.
An easing of sanctions also may be interpreted as suggesting that U.S. attempts to isolate Iran economically have not succeeded.
U.S. hostility toward the Islamic fundamentalists who run the country has its roots in the takeover of the U.S. Embassy in Tehran by revolutionaries in 1979 and the holding of Americans hostages in defiance of traditional diplomatic practice.
In an announcment following Albright's speech the Iranian Foreign Ministry said it welcomes the U.S. decision to ease sanctions.