Hillary Clinton says the US is ready to further improve relations with Myanmar's government, but only if it stays on the path of democratisation.
After landmark talks in Myanmar's capital, Naypyidaw, on Thursday, the US secretary of state said the country's leaders had promised to carry out more reforms.
She cautioned, however, that action so far has been "insufficient" to warrant a breakthrough in ties.
Clinton said the US would take small steps including discussing possible searches with Myanmar for remains of US soldiers killed during the second world war.
Clinton also invited Myanmar to join as an observer the Lower Mekong Initiative, a US programme that offers co-operation on health and the environment in Southeast Asian nations.
"These are incremental steps and we are prepared to go further if reforms maintain momentum. In that spirit, we are discussing what it will take to upgrade diplomatic relations and exchange ambassadors," Clinton told reporters.
"Over time, this could become an important channel to air concerns, monitor and support progress and build trust on both sides," she said.
First high-level visit
The US has been represented in Myanmar by a lower-ranking diplomat, a charge d'affaires, as a protest since the country's military rulers refused to accept the results of 1990 elections swept by pro-democracy icon Aung San Suu
Clinton's visit is the first high-level visit by a US official in half a century.
Myanmar President Thein Sein hailed a "new chapter in relations" with Washington.
"Your visit is historic and will be a new chapter in relations. I appreciate the atmosphere you have created for friendly relations," he told Clinton.
Al Jazeera's Aela Callan reports from Naypyidaw
Clinton, in turn, told the former general: "I am here today because President [Barack] Obama and myself are encouraged by the steps that you and your government have taken to provide for your people."
Myanmar was ruled by the military for decades until elections last year brought a nominally civilian government to power - albeit one with close links to the army.
"This redistribution of power has seen many surprises come up and the pace of reform has been much quicker than many had anticipated," Al Jazeera's Aela Callan reported from Naypyidaw.
"President Thein Sein and also the speaker of the lower house have shown great desire to open the country to the West. In particular, they will be looking for help to reform the economy. A third of Myanmar is still in poverty and foreign aid is low."
The country's rulers abruptly moved the capital to Naypyidaw from Yangon in 2005.
Clinton travelled to the former capital later on Thursday, where she was to meet Aung San Suu Kyi, the head of the opposition National League for Democracy and a Nobel laureate who has spent much of the last two decades in prison.
The UN and international human rights organisations have repeatedly issued reports of widespread and systematic human rights violations in Myanmar.
But since the transition to "civilian" government, the country's record has been improving, rights groups say.
The government recently released more than 230 political prisoners, eased media censorship and sought guidance from international financial institutions to revive its economy.
Myanmar also amended its political parties law, removing a clause which bars anyone convicted of a crime from joining a party or taking part in an election. That paves the way for political prisoners, particularly Suu Kyi, to run for office.
In a rare interview with US reporters on Wednesday, Suu Kyi said she was ready to gamble that recent reforms represent a genuine transition to democracy after decades of false hopes.
"We hope that they are meaningful," she said. "I think we have to be prepared to take risk. Nothing is guaranteed."
China called on Thursday for international sanctions against its key ally Myanmar to be lifted.
"We maintain relevant nations should lift sanctions on Myanmar and promote Myanmar's stability," Hong Lei, the Chinese foreign ministry spokesman, said.
Clinton has said credible elections are a prerequisite for ending US sanctions, along with the release of more political prisoners and peace with ethnic minorities.