The Swiss application for European Union membership, on ice since 1992, will not be withdrawn, the cabinet announced after a special meeting on Wednesday.
A report on all the options regarding the EU, including membership, will be presented by next summer, to help decide the ultimate direction on Europe.
Foreign minister Micheline Calmy-Rey said that the government was determined to maintain a "policy of active cooperation" in Europe.
A purely defensive, fearful approach to Europe, always saying no and just wanting to keep the status quo, would not be in Switzerland's interest, Calmy-Rey said.
Switzerland applied to join the EU in May 1992. Brussels put the application on ice in the same year after the Swiss population voted against joining the European Economic Area (EEA).
As an alternative to membership, Bern has taken the "bilateral" route, concluding 16 agreements with Brussels in two separate rounds of negotiations.
The cabinet decision indicates that European Union membership is no longer a strategic objective of Switzerland, but a long-term option.
The report on Switzerland's European policy will present the advantages and disadvantages of five different options, from the current bilateral approach to full membership.
At the beginning of October, 19 parliamentarians from three different parties put forward motions calling for withdrawal of the long-standing EU application. The cabinet will now recommend that parliament reject these motions.
The Social Democrats and the Christian Democrats welcomed the government's decision not to withdraw the membership application.
swissinfo with agencies
The Swiss government agreed on Wednesday to the opening of a European Union embassy in Switzerland. The request was made on August 19.
The presence of a permanent EU delegation in the Swiss capital Bern will facilitate contact and the development of intense relations between Switzerland and the EU, according to the government.