While the report gives no actual entry date, diplomats say Croatia could become the EU's 28th member in 2011 if it concludes accession talks next year and if the standard procedures are completed on time.
"We now have a defined timeframe and are entering the final stage of a process we started almost two decades ago," Ivo Sanader, the Croatian prime minister, said.
"We need to be persistent and focused on achieving our strategic goals."
The enlargement commission said that Croatia had to tackle organised crime and corruption, implement changes to its shipyard and steel industries and improve its management of EU funds.
EU member states have little appetitie to expand the bloc after the costly admission of 12 mostly former communist countries from central and eastern Europe.
France and Germany say that before enlarging, the EU should revive its stalled Lisbon treaty, meant to prepare the bloc's institutions for more members.
Ireland rejected the treaty in a referendum this year, although its prime minister is expected to present ideas in December on how his country might pass the charter regardless of the vote.
The commission's report said other EU candidates, namely Turkey, Serbia, Albania, Macedonia, Bosnia, Montenegro and Kosovo, were making only limited progress on required reforms.
"Their advance towards EU membership can be accelerated, provided they meet the necessary conditions," Rehn said.
The commission said that Turkey had a functioning market economy, a key step on the road towards eventual EU membership.
However, it also said the implementation of changes had stalled of late, due to a political crisis linked to a constitutional case against the governing AK Party.
During a trip to Rome, Ali Babacan, the foreign minister, said Ankara considered some of the EU criticisms to be unwarranted.
He said that the Turkish government is preparing a detailed reaction, which will be released next week.