Serbia has recognised Montenegro as an independent state, after the country's vote to break away from Belgrade.
Montenegro's referendum revealed a big split in the country
"Conditions have been created for the government of Serbia... to recognise the Republic of Montenegro and establish diplomatic ties," it said.
Montenegro's vote on 21 May ended the union of Serbia-Montenegro - all that was left of the old Yugoslavia.
Many European countries, along with China and the US, have now recognised Montenegro's independence.
They include Montenegro's Balkan neighbours Albania, Bosnia-Hercegovina, Bulgaria, Croatia, Greece and Romania.
Serbia-Montenegro was the last vestige of what was once the six-member Yugoslav federation.
The Serbian parliament decided on 5 June to declare independence and resolve all disputed issues with Montenegro.
Under the constitutional charter of the union, Serbia now inherits membership of the United Nations and other international institutions, leaving Montenegro to apply in its own right.
Iceland and its people have become the objects of admiration across Montenegro ever since Reykjavik led the way in recognising Montenegro last week.
Newspapers in Montenegro report that Montenegrin families have been offering Icelanders free holidays in their homes, and several papers have published maps of Iceland on their front pages, explaining the history and economy of the country.