The Organisation of American States tonight lifted Cuba's half-century-old suspension in a dramatic decision to bring Havana back into Latin America's diplomatic fold.

The pan-regional body rebuffed the United States, which lobbied against the move, and revoked a 1962 cold war measure which had marked the communist island as a pariah.

"The cold war has ended this day in San Pedro Sula," said Manuel Zelaya, the president of Honduras, who hosted the 34-member organisation in Honduras's second city.

Dozens of foreign ministers from the Caribbean as well as central and South America stood to applaud when the announcement was made at the end of the two-day summit. "This is a moment of rejoicing for all of Latin America," Ecuador's foreign minister, Fander Falconi, told reporters.

Cuba said it had no interest in rejoining the OAS, which Fidel Castro this week called a "Trojan horse" for US interests, but the opening of the door was a diplomatic victory for Havana and exposed Washington's isolation.

Much of Latin America once considered Castro an anachronistic despot but since the 1990s the "maximum commandante" has won respect as an elder statesman and symbol of Latin American nationalism. Only the US still lacks diplomatic relations with the island.

The US secretary of state, Hillary Clinton, said Havana should not be readmitted until it made concessions on democracy and human rights, a line echoed by the advocacy group Human Rights Watch which said political prisoners and repression continued under President Raul Castro.

Those arguments were swept away by largely leftist governments who thought the organisation had been beholden to Washington for too long. "The vote to readmit Cuba to the OAS represents an unprecedented assertion of Latin American power in a hemispheric institution long dominated by the US," said Daniel Erikson, an analyst at the Inter-American Dialogue thinktank and author of The Cuba Wars.

Washington recently softened its economic embargo against Cuba - a controversial policy enshrined the same year the OAS suspended the fledgling Castro government - but that was not enough to appease Latin leaders demanding bolder steps.

"The vote sends a powerful signal to the Obama administration that the path of moderate, incremental change in US policy towards Cuba is depleting America's political capital in the region at an alarming rate," said Erikson.

Latin leaders gave Obama a rapturous reception at an April summit in Trinidad and Tobago, his regional debut, but today's decision showed a steely resolve to stand up to the "gringo" superpower which is considered to have bullied the region for over a century.

The US had hoped to engineer a compromise which would hinge Cuba's entry on the condition it met OAS democratic requirements. Instead, isolated and outnumbered, the US was cornered into a consensus agreement which said Cuba could rejoin after a "process of dialogue" in line with OAS "practices, proposals and principles".

A US state department spokesman put a brave face on the outcome and said the US had dissuaded other members from automatically readmitting Cuba. "The historic action taken today eliminates a distraction from the past and allows us to focus on the realities of today."

In contrast to its diplomatic shine, Cuba's economy darkened this week. Government austerity measures cut fuel and food rations in response to tumbling government revenues.