Morocco's return came a day after 39 of the AU's 54 member states agreed to allow it back in the fold, despite stiff resistance from countries such as South Africa and Algeria over the status of the disputed former Spanish colony.
Faced with the AU's decision, Western Sahara officials appeared to accept the new reality, saying AU membership might help speed up efforts to end a protracted conflict.
"It is a beautiful day when one returns home after too long an absence," Mohammed VI told the closing ceremony of the AU summit in Ethiopia.
Morocco quit the then Organisation of African Unity (OAU) in 1984 after the bloc admitted the former Western Sahara as a separate member.
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Morocco maintains that the territory under its control -- which is home to large reserves of phosphate, a key ingredient in fertilisers, as well as rich fish stocks off its coast -- is an integral part of the kingdom.
But the Polisario Front, which campaigns for independence, demands a referendum on self-determination for the territory of half a million residents.
"From the moment that Morocco did not impose conditions ... We take their word for it and accept that Morocco be admitted to the African Union," said Mohamed Salem Ould Salek, foreign minister of the SADR, which claims sovereignty over the entire territory of Western Sahara.
Salek said Monday that having Morocco in the same room would allow the SADR to pressure them into fulfilling their obligations and hold a long-sought referendum.
King Mohammed did not raise the issue of Western Sahara in his speech, choosing instead to highlight how Morocco, "one of the most developed African nations", could be a boon to the continent.
"We do not ignore the fact that we do not have unanimity in this noble assembly. We do not want to create divisions as some have insinuated," he said.
Morocco will be "a motor for common economic growth", he vowed.
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