The United States has lifted a ban on the government sale of non-lethal defense equipment to Indonesia as part of a step-by-step process to restore full military ties frozen due to human rights abuses, the State Department announced.

It said the decision was made Wednesday, when Indonesian President Susilo Bambang Yudhoyono met with US leader George W. Bush at the White House and reaffirmed his commitment to reforms in the military, accused in the past of gross rights abuses.

"We decided to renew government-to-government transfers of non-lethal defense articles and services to the government of Indonesia," State Department spokesman Richard Boucher told reporters. "That means we can do foreign military sales in excess defense articles," he said.

Boucher described the move as the "third step" in a process that began early this year, aimed at easing the military embargo on Indonesia following reformist Yudhoyono's win in the world's most populous Muslim nation's first direct presidential elections.

Direct US commercial sales of non-lethal defense articles and services were allowed in January. The sales involved, in particular, providing spare parts to Indonesian C-130 aircraft used in relief operations after the December 26 tsunami that ravaged Aceh province and left 128,000 people dead. Washington then decided to restore a military education and training program for Indonesia.

The United States had made clear that full normalization of military ties was contingent on Jakarta's efforts to solve the killing of two American teachers in 2002 and its dealing with atrocities since 1991 in East Timor, before the former Indonesian island province was granted independence.

The United Nations alleged that at least 1,400 people were murdered in military-backed violence in the largely Roman Catholic territory. Entire towns were razed.

Boucher said full normalization of defense ties "will depend upon continued counterterrorism cooperation, prosecution and punishment of members of the armed forces who've been credibly alleged to have committed gross violations of human rights, accountability for human rights abuses committed in East Timor and elsewhere, and transparency of military financing.

"So this is a step along the road that we hope to be able to go down as Indonesia makes these further changes in reforming the military," he said.

Boucher added that non-lethal items from Defense Department excess stocks or those sold with services, such as training and maintenance, could "enhance democratic military reform and help achieve key security objectives, such as humanitarian relief, counterterrorism and maritime security."

Indonesia is seeking military hardware and training assistance from the United States to revitalise its overstretched and poorly-equipped armed forces guarding a vast archipelago.

Yudhoyono told American business leaders at a US Chamber of Commerce meeting Thursday that the Indonesian military establishment was out of politics and getting out of business. "We will only have professional soldiers," he said.

He added that efforts were also being intensified to weed out graft, a perennial problem in his country. "In Indonesia, the days of impunity among the crooked are over."

The Indonesian leader used the occasion of the five-month anniversary of the tsunami to thank American business leaders and the government for contributing about one billion dollars in aid to victims of the disaster. In conjunction with his visit, the US and Indonesian chambers of commerce signed a memorandum of understanding Thursday to strengthen business ties and promote trade, and Boeing signed a nearly four billion dollar prospective deal with Indonesia's biggest budget carrier Lion Air for sale of 60 new generation 737 planes.