Obama informed Congress that he will lift trade and investment sanctions against Khartoum, although Sudan will still be designated a state sponsor of terrorism.
The outgoing president noted "a marked reduction in offensive military activity, culminating in a pledge to maintain a cessation of hostilities in conflict areas in Sudan."
He also recognized "steps toward the improvement of humanitarian access throughout Sudan, as well as cooperation with the United States on addressing regional conflicts and the threat of terrorism."
Al-Qaeda leader Osama bin Laden was based in Khartoum from 1992 to 1996.
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The US government believes those ties have ebbed, but sanctions have remained amid the government's scorched earth tactics against ethnic minority rebels in Darfur.
According to the United Nations, 300,000 people have been killed and 2.5 million were displaced since that conflict began in 2003.
The country's long-time leader President Omar al-Bashir is wanted by the International Criminal Court for War Crimes.
"The Obama administration's decision to 'ease' sanctions is inexplicable," said Leslie Lefkow of Human Rights Watch.
"Sudan's government has failed to make progress on core benchmarks, from its ongoing war crimes and crimes against humanity in Darfur and other conflict zones, to its extensive repression of independent voices."
The measures mean that Sudanese assets will be unblocked and business transactions will now be permitted.
"Treasury's sanctions are aimed at encouraging a change in behavior, and in the case of Sudan, our sanctions were intended to pressure the government of Sudan to change the way it treats its people," said the Treasury Department's Adam Szubin, noting progress.