The European Commission has recommended that Macedonia become a candidate country for EU membership.
Macedonia will be the third ex-Yugoslav republic to gain candidate status, after Slovenia - an EU member since 2004 - and Croatia.
The Commission did not set a date for starting entry talks with Macedonia, leaving that to December's EU summit.
It said Turkey could now be termed a functioning market economy but said it had to do more to respect human rights.
EU officials say that politically, Macedonia is an incredibly positive story, but that it still has a long way to go in terms of the economy and the public administration.
Weak and divided
The country stepped back from the brink of civil war in 2001, after the EU and Nato helped broker an agreement between ethnic Albanian rebels and the majority Slav population.
Guide to EU candidates
"Only a few years after a major security crisis, the former Yugoslav republic of Macedonia today is a stable democracy and a functioning multi-ethnic state," a Commission statement said.
"This is a remarkable achievement. The country has also made important progress towards European integration. The Commission welcomes this progress and recommends that the Council should grant candidate status to the country."
The Commission's annual progress reports on applicant countries, released on Wednesday, describe the Balkans as a particular challenge for the EU, a region where states are weak and societies divided.
All of them have been promised eventual EU membership, but the Commission makes clear they can only join once they have met the criteria in full.
It also admits that any further expansion will have to be better explained to the people of Europe.
Accession talks with Turkey, which began last month, are described as a long-term process.
Turkey's acquisition of market economy status is a vital stage on the path to EU membership.
The Commission said: "Turkey can be regarded as a functioning market economy, as long as it firmly maintains its recent stabilisation and reform achievements."
But the Commission warns that the pace of change has slowed down this year and sets Turkey almost 150 things to do in the next two years if it wants to keep membership talks on track.
The long list includes implementing a policy of zero tolerance against torture, strengthening the fight against corruption, and limiting the political influence of the armed forces.
Turkey must also improve freedom of expression, women's rights and grant more religious freedom and more cultural rights to the Kurdish community. BBC