Kenya's President Uhuru Kenyatta, right, talks to Ethiopian Prime Minister Abiy Ahmed in Nairobi, May 7. (Reuters)

Ethiopia’s ruling party announced plans Tuesday to implement a long-moribund peace deal with Eritrea, opening the way for improved relations after 18 years of hostility.

The surprise announcement also included plans to allow private sector involvement in industries long reserved for the state, in a major revision of economic policy.

The moves are part of reforms being implemented by Ethiopia’s new prime minister, Abiy Ahmed, who was selected by the party in March after his predecessor resigned amid widespread unrest.

Since becoming prime minister, Abiy has freed hundreds of prisoners and met with outlawed opposition figures, and on Tuesday, Parliament at his behest lifted a state of emergency two months early.

At his inauguration, Abiy also had pledged to improve ties with Eritrea, but few expected as dramatic a move as came out of Tuesday’s meeting of the executive committee of the Ethiopian People’s Revolutionary Democratic Front.

Eritrea was once part of Ethi­o­pia and fought for decades for its independence, which it finally achieved after helping rebels overthrow the communist Derg government in 1991. Initially, it had close ties with Ethiopia’s new rebel-formed government.

In 1998, however, a dispute over the nondescript border town of Badme turned into a savage, year-and-a-half-long war that claimed tens of thousands of lives on both sides.

A peace agreement known as the Algiers accord was finally signed in 2000, and international arbitration awarded the village to Eritrea — but Ethi­o­pia balked at implementing the deal.

The result was two decades of hostile stalemate with periodic clashes on the border, most recently in 2016 when hundreds were killed. Ethi­o­pia is also home to tens of thousands of Eritrean refugees and has lost access to its traditional outlets to the Red Sea along the Eritrean coast.

With Ethi­o­pia announcing its willingness to pull out of Badme, the door is finally open for improved relations between the two countries, which share extensive links.

“Ethiopia and Eritrea have the most unique cultural, historical and blood ties. The suffering on both sides is unspeakable because the peace process is deadlocked. This must change for the sake of our common good,” Fitsum Arega, the prime minister’s chief of staff, tweeted shortly before the announcement.

Almost overshadowed by news that Ethi­o­pia could be reconciling with a historical enemy was what appeared to be a major shift in the country’s economic approach.

While one of the fastest growing in Africa, Ethi­o­pia’s economy remains dominated by the state, with a very limited role for the private sector.

Now private sector participation will be allowed in energy, telecommunications and aviation — all government monopolies — the party announced, although the state will still hold majority stakes.

Other sectors, however, will be open to full private sector ownership, including railways, the sugar industry and hotels, said the announcement.

Amid its high growth, Ethi­o­pia has been accumulating large amounts of debt even as job growth has faltered, contributing to the unrest. Inviting in the private sector appears to be an effort to rethink the country’s state-driven growth model and boost the economy.