Obama's move, the latest in an aggressive first week reversing contentious Bush policies, was warmly welcomed by liberal groups and denounced by abortion rights foes.
The ban has been a political football between Democratic and Republican administrations since GOP President Ronald Reagan first adopted it 1984. Democrat Bill Clinton ended the ban in 1993, but Republican George W. Bush re-instituted it in 2001 as one of his first acts in office.
"For too long, international family planning assistance has been used as a political wedge issue, the subject of a back and forth debate that has served only to divide us," Obama said in a statement released by the White House. "I have no desire to continue this stale and fruitless debate."
He said the ban was unnecessarily broad and undermined family planning in developing countries.
"In the coming weeks, my administration will initiate a fresh conversation on family planning, working to find areas of common ground to best meet the needs of women and families at home and around the world," the president said.
Obama issued the presidential memorandum rescinding the Bush policy without coverage by the media, late Friday afternoon. The abortion measure is a highly emotional one for many people, and the quiet signing was in contrast to the televised coverage of Obama's announcement Wednesday on ethics rules and Thursday's signing of orders on closing the Guantanamo Bay prison camp and banning torture in the questioning of terror suspects.
His action came one day after the 36th anniversary of the landmark Supreme Court ruling in Roe v. Wade that legalized abortion.
The Bush policy had banned U.S. taxpayer money, usually in the form of Agency for International Development funds, from going to international family planning groups that either offer abortions or provide information, counseling or referrals about abortion as a family planning method.
Critics have long held that the rule unfairly discriminates against the world's poor by denying U.S. aid to groups that may be involved in abortion but also work on other aspects of reproductive health care and HIV/AIDS, leading to the closure of free and low-cost rural clinics.
Supporters of the ban say that the United States still provides millions of dollars in family planning assistance around the world and that the rule prevents anti-abortion taxpayers from backing something they believe is morally wrong.
The ban has been known as the "Mexico City policy" for the city a U.S. delegation first announced it at a U.N. International Conference on Population.
Both Obama and Secretary of State Hillary Rodham Clinton, who will oversee foreign aid, had promised to do away with the rule during the presidential campaign.
Clinton said Friday evening that for seven years Bush's policy made it more difficult for women around the world to gain access to essential information and health care services. "Rather than limiting women's ability to receive reproductive health services, we should be supporting programs that help women and their partners make decisions to ensure their health and the health of their families," Clinton said.
In a related move, Obama also said he would restore funding to the U.N. Population Fund (UNFPA). Both he and Clinton had pledged to reverse a Bush administration determination that assistance to the organization violated U.S. law known as the Kemp-Kasten amendment.
Obama, in his statement, said he looked forward to working with Congress to fulfill that promise: "By resuming funding to UNFPA, the U.S. will be joining 180 other donor nations working collaboratively to reduce poverty, improve the health of women and children, prevent HIV/AIDS and provide family planning assistance to women in 154 countries."
Thoraya Ahmed Obaid, executive director of the U.N. Population Fund, said: "The president's actions send a strong message about his leadership and his desire to support causes that will promote peace and dignity, equality for women and girls and economic development in the poorest regions of the world."
"We are confident that under the new president's direction, the U.S. will resume its leadership in promoting and protecting women's reproductive health and rights worldwide," Obaid said in a statement issued at U.N. headquarters in New York.
The Bush administration had barred U.S. money from the fund, contending that its work in China supported a Chinese family planning policy of coercive abortion and involuntary sterilization. UNFPA has vehemently denied that it does.
Congress had appropriated $40 million to the UNFPA in the past budget year, but the administration had withheld the money as it had done every year since 2002.
Organizations and lawmakers that had pressed Obama to rescind the Mexico City policy were jubilant.
House Speaker Nancy Pelosi, D-Calif., said the move "will help save lives and empower the poorest women and families to improve their quality of life and their future."
"Today's announcement is a very powerful signal to our neighbors around the world that the United States is once again back in the business of good public policy and ideology no longer blunts our ability to save lives around the globe," said Sen. John Kerry, D-Mass., chairman of the Senate Foreign Relations Committee.
Population Action International, an advocacy group, said that the policy had "severely impacted" women's health and that the step "will help reduce the number of unintended pregnancies, abortions and women dying from high-risk pregnancies because they don't have access to family planning."
Anti-abortion groups and lawmakers condemned Obama's decision.
"I have long supported the Mexico City Policy and believe this administration's decision to be counter to our nation's interests," said Senate Republican leader Mitch McConnell of Kentucky.
"Coming just one day after the 36th anniversary of the tragic Roe v. Wade decision, this presidential directive forces taxpayers to subsidize abortions overseas — something no American should be required by government to do," said House Minority Leader John Boehner, R-Ohio.
Rep. Mike Pence, R-Ind., called it "morally wrong to take the taxpayer dollars of millions of pro-life Americans to promote abortion around the world."
"President Obama not long ago told the American people that he would support policies to reduce abortions, but today he is effectively guaranteeing more abortions by funding groups that promote abortion as a method of population control," said Douglas Johnson, legislative director of the National Right to Life Committee.
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