The dramatic findings are designed to spur a revival of Catholic-Protestant cooperation in Northern Ireland.
The prime ministers of Britain and Ireland, Tony Blair and Bertie Ahern, embraced the report by the Independent Monitoring Commission.
The panel, which includes former chiefs of the US Central Intelligence Agency and the anti-terrorist branch of Scotland Yard, listed statistics and trends that demonstrated the shadowy group's determination to consign its terrorist capability to history.
"The IRA has done what we asked it to do," Mr Blair declared at his Downing Street office in London.
Unusually, hard-line Protestant leader Ian Paisley also welcomed the report for what he called signs that the IRA "is progressively abandoning its terrorist structures."
But he emphasised his Democratic Unionist Party would not share power until Sinn Fein, the IRA-linked party that represents most Catholics, accepts the authority of Northern Ireland's police force, the last major obstacle in a 13-year-old peace process.
Mainstream politics
The report concluded that the IRA - which killed 1,775 people and maimed thousands more from 1970 to a 1997 ceasefire - no longer believed it could overthrow Northern Ireland by force.
Instead, it said, the IRA was committed to supporting Sinn Fein's march into mainstream politics.
The US envoy to Northern Ireland, Mitchell Reiss, said Washington was "particularly heartened by the commission's conclusions that the IRA is now firmly set on a political strategy, eschewing terrorism and other forms of crime."
The commission said IRA commanders had sanctioned no killings over the previous 12 months, were cracking down on members involved in criminal rackets, and had cut off members' financial stipends as it trims its rank and file.
Crucially, the experts said the IRA had shut down three departments that for decades oversaw the recruitment and training of members, arms smuggling from overseas, and construction of bombs and other weapons systems.
Analysts agreed that shutting down such units could presage the gradual death of the IRA, while the experts' use of the word "disband" appeared a deliberate nod to Paisley's core demand for the IRA's total disbandment.
Sinn Fein leader Gerry Adams said the IRA's moves removed any excuse for the Democratic Unionists not to form a Cabinet alongside
their longtime enemies.
"We could do a deal tonight. We could do it tomorrow. It's all up to Ian Paisley," Adams said.
Power sharing government
Britain and Ireland say a deal to revive power-sharing government in Northern Ireland could be struck as early as next week after the release of the report.
Mr Blair and Mr Ahern said they are increasingly optimistic of achieving progress in a negotiating summit October 11-13 in Scotland, during which they hope to get Paisley and Adams into face-to-face negotiations for the first time.
The two premiers, whose close cooperation since 1997 has inspired much of the peace process, plan to lead the talks -- and bill them as their last effort to revive power-sharing, the central goal of Northern Ireland's Good Friday peace accord of 1998.
They have threatened to dissolve the Northern Ireland Assembly, a 108-member legislature with the power to elect a Catholic-Protestant administration, if both sides cannot strike a deal before a November 24 deadline.
"While issues like policing remain to be resolved, the door is now open to a final settlement, which is why the talks next week in Scotland are going to be so important," Blair said.
The IRA's longtime refusal to disarm -- a policy at odds with the Good Friday pact -- sabotaged Northern Ireland's previous Catholic-Protestant administration.
The coalition suffered repeated breakdowns, and collapsed in 2002 over an IRA spying scandal in government circles.
But the IRA last year declared its ceasefire permanent and handed over its secretly stockpiled weaponry to disarmament chiefs.
Britain responded to that breakthrough by accelerating its military cutbacks.