The African Union readmitted Mali after suspending it from the pan-African bloc following a coup in March, and backed plans for authorities there to recapture the north from Islamists.
"Council decides to lift the suspension of Mali's participation in the activities of the AU," the Union's Peace and Security Commissioner Ramtane Lamamra, told reporters.
Mali's membership was revoked after army officers overthrew the elected government seven months ago.
The subsequent chaos gave free rein to a rebellion by Islamic extremists and Tuareg separatists who took over large swathes of the country's north, before the Islamists forced out their former Tuareg allies.
On Wednesday the AU also endorsed a plan urging the "restoration of state authority of the northern part of the country".
The plan, which also calls for free elections in Mali early next year, would be presented to the United Nations Security Council for endorsement, said Lamamra.
Last week officials from the United Nations, the AU, Mali and the regional bloc ECOWAS met in the Malian capital to devise a strategy to defeat rebels in the north.
The AU called for Mali's authorities to set up a national body to open talks with any armed groups in the north "willing to engage in dialogue to find the political solution to the crisis", said Lamamra.
ECOWAS has assembled a force of some 3,000 troops to try to retake Mali's desert north, an area roughly the size of France.
An AU statement Wednesday said it was working with Mali, the UN, EU and others on plans "for the early deployment of an African-led international force to help Mali recover the occupied territories in the North".
Hundreds of jihadist fighters, mainly from Sudan and Western Sahara, arrived in northern Mali over the weekend to support the Islamist groups ahead of the planned regional intervention.
Western governments are fearful that northern Mali could become a sanctuary for radicals.
The armed Islamists have already enforced a harsh version of sharia law there, forcing women to cover their heads and banning cigarettes, alcohol and music.
In one incident Islamists stoned an unmarried couple to death. They have also amputated the limbs of thieves and whipped people accused of having violated their interpretation of Islamic laws on marriage and the drinking of alcohol.
Earlier Wednesday, France's defence minister backtracked from a suggestion that military intervention in Mali was imminent, cautioning that preparations to deploy the African force remained at an early stage.
Jean-Yves Le Drian said last week that military action would happen in "weeks not months".
But he told Radio France International: "It is not the time for intervention at the moment. Right now it is about putting in place the preparations requested by the UN Security Council."
France has led the push for military action in Mali, a former colony where six French hostages are currently being held by Islamist groups. It has promised to support the African force with training, logistics and equipment.
US Secretary of State Hillary Clinton is due in Algeria next Tuesday, where one of the topics of discussion will be the crisis in neighbouring Mali.
Algeria and Mauritania, which both share borders with the rebel-held north of Mali, have called for dialogue to reach a political solution to the crisis.
Both have ruled out sending troops into Mali to battle Islamist militia.