The Swiss government has joined the United States, Britain, Germany and others by deciding to recognise Kosovo as an independent country.
President Pascal Couchepin said Switzerland would establish diplomatic relations with the breakaway Serbian province after it declared independence ten days ago.
Couchepin said the government took the decision on Wednesday following consultations with two key parliamentary committees.
He said the government welcomed a commitment by the authorities in Kosovo to protect ethnic minorities and accept the presence of international civilian and military forces in the region.
"There is no ideal solution when emotions run very high," said Couchepin in an indirect reference to angry calls by Serbians over Kosovo's independence.
He added Switzerland had always taken into account the interests of all parties involved.
"Switzerland's recognition goes hand in hand with the desire to develop further its good relations with Serbia and strengthen the very close cooperation," Couchepin said.
Swiss Foreign Minister Micheline Calmy-Rey has openly backed independence for Kosovo for more than two years.
Switzerland is home to one of the largest Kosovar expatriate communities in Europe, but it also represents Serbia's interests in the International Monetary Fund and World Bank.
Clarification of the status of Kosovo is a precondition for the stability and for the development of the whole Balkan region, a statement said.
Couchepin said Switzerland was willing to play an active part in the international efforts both in Kosovo and in the region as a whole.
The Kosovo issue has divided countries in Europe. France and Germany were among the first to recognize it. Others worried about their own breakaway movements, such as Spain, have not recognized Kosovo.
Serbia has said it will never accept the loss of what it considers its historical heartland. It is supported by Russia.
swissinfo with agencies
Switzerland is home to about 170,000 Kosovars - the second-largest immigrant community after Italians.
There are also about 40,000 Serbs in Switzerland.
In total about 300,000 people in Switzerland come from the former Yugoslavia.
Switzerland has had about 200 troops stationed in Kosovo since 1999.
The foreign ministry said it could send up to 20 policemen and legal experts as part of a European Union mission in Kosovo.
The Swiss government's development agency (SDC) has earmarked SFr13.9 million ($12.7 million) for aid in Kosovo in 2008.