WASHINGTON/DUBAI/KHARTOUM (Reuters) - President Donald Trump announced on Monday the United States would remove Sudan from its list of state sponsors of terrorism as soon as Khartoum sets aside the $335 million it has agreed to pay to American victims of militant attacks and their families. The deal could also set in motion steps by Sudan toward establishing diplomatic relations with Israel, a U.S. official told Reuters, following similar U.S.-brokered moves by the United Arab Emirates and Bahrain. The details were still being worked out, the source said. Although Trump made no mention of Israel in his tweet announcing the breakthrough with Sudan, rapprochement between Israel and another Arab country would give Trump a new diplomatic achievement as he seeks re-election on Nov. 3. Sudan’s designation as a state sponsor of terrorism dates to its toppled ruler Omar al-Bashir and makes it difficult for its transitional government to access urgently needed debt relief and foreign financing. Many in Sudan say the designation, imposed in 1993 because Washington believed Bashir was supporting militant groups, has become outdated since he was removed last year and Sudan has long cooperated on counterterrorism. U.S.-Sudanese negotiations have focused on funds that Washington wants Khartoum to deposit in escrow to be paid for victims of al Qaeda attacks on U.S. embassies in Kenya and Tanzania in 1998, U.S. government sources said. “GREAT news! New government of Sudan, which is making great progress, agreed to pay $335 MILLION to U.S. terror victims and families,” Trump tweeted. “Once deposited, I will lift Sudan from the State Sponsors of Terrorism list.” A Sudanese government source said Khartoum was ready to pay compensation to U.S. Embassy bombing victims. “Thank you so much, President Trump!” Sudanese Prime Minister Abdalla Hamdok tweeted. “We very much look forward to your official notification to Congress rescinding the designation of Sudan as a state-sponsor of terrorism.” While Trump can act on his own to remove Sudan from the list, congressional legislation is needed to ensure the flow of payments to embassy bombing victims and their families - and immediate action on Capitol Hill is far from certain. Urging congressional action, Edith Bartley, spokeswoman for Americans killed in the Nairobi bombing, said the funds would meet a commitment by three successive presidents “to condition normalization (with the U.S.) on compensating survivors and the families of those who were lost to acts of terror.” ISRAEL WAS STICKING POINT A key sticking point in the negotiations was Sudan’s insistence that any announcement of Khartoum’s delisting not be explicitly linked to normalization with Israel. Differences remain between Sudanese political and military officials on how far to go in the warming of relations with Israel. Hamdok, who runs the country together with the military in a transition since the toppling of Bashir, told U.S. Secretary of State Mike Pompeo in Khartoum in August that the normalization issue should not be tied in with Sudan’s removal from the terrorism list. One possibility, a U.S. official said, would be for Washington to leave it to Sudan and Israel to go public later, possibly in coming days, with an agreement on opening relations. The UAE and Bahrain in September became the first Arab states in a quarter of a century to agree to formal ties with Israel, forged largely through shared fears of Iran. Asked whether an Israel-Sudan breakthrough was imminent, Israeli Finance Minister Israel Katz told Israel’s Army Radio: “I hope that the intensive contacts will yield positive fruit.” The Trump administration, which is also expected to offer economic aid, must now notify the U.S. Congress of its intent to take Sudan off the terrorism list. A remaining obstacle is that Congress must pass legislation restoring Sudan’s sovereign immunity, a shield against future legal claims for past attacks once it pays the compensation it already owes. Sudan had lost that protection because of the terrorism designation. Echoing concerns of other lawmakers, Democratic Senator Bob Menendez said in an Oct. 15 letter to Pompeo that “corrective action” was needed to ensure the deal did not make it more difficult for victims of al Qaeda’s Sept. 11, 2001, attacks to sue for damages. Sudan was accused of giving safe haven to al Qaeda leaders.