The European Commission today recommended the launch of EU membership negotiations with Iceland.
The final decision will be made by EU leaders, but today's formal commission "opinion" endorsing the idea comes seven months after the Icelandic government submitted a membership application.
The commission's new Enlargement Commissioner Stefan Fule said: "The opinion is an important step in the accession process and provides guidance to Iceland in its efforts to become an EU member.
"I am confident that Iceland will show determination in addressing the challenges highlighted in the opinion."
Those challenges, says the commission, include bringing the country's fisheries, agriculture and environment policies into line with EU law.
The report also singles out for attention the free movement of capital and financial services.
All these issues require "serious efforts" if Iceland is to achieve "full alignment" with EU rules, warns the commission.
The most sensitive issue is the billions of pounds Iceland has yet to pay back to the UK and Dutch governments after both countries stepped in to bail out investors in the online Icesave bank, which collapsed during the economic downturn in 2008.