But the United States and Russia gave different interpretations of whether the mission - to initially consist of 100 civilian monitors and whose deployment will begin this weekend - will be able to go to Crimea, after the Black Sea peninsula was annexed by Russia.
The United States said in a statement to an extraordinary meeting of the Organization for Security and Cooperation in Europe (OSCE):
"It is clear that with the adoption of this decision this mission has a mandate to work in Crimea and in all other parts of Ukraine."
But Russian Ambassador Andrey Kelin said Crimea had become part of Russia.
"They have no mandate there," he told reporters after the meeting.
Nevertheless, German Foreign Minister Frank-Walter Steinmeier said the move by the Vienna-based OSCE - tasked with preventing conflict and promoting democracy in Europe - was a step towards de-escalating the crisis in Ukraine.
Ukraine, locked in a confrontation with its former Soviet overlord Russia over Moscow's annexation of its Crimean region, has in recent weeks pushed for OSCE monitors to be deployed on its territory, as have Western countries.
However, earlier attempts to reach agreement failed due to what Western diplomats described as Russian objections to the mission's mandate.
Russia, Ukraine and the United States are all members of the OSCE, which takes decisions by consensus.
President Vladimir Putin signed laws completing Russia's annexation of Crimea on Friday, as investors took fright at a U.S. decision to impose sanctions on his inner circle of money men and security officials.
"This is not yet the end of the crisis but a step that helps to support our de-escalation efforts," Steinmeier, who is set to travel to Ukraine on Saturday, said about the OSCE mission.
"The situation in Ukraine remains unstable and menacing. For this reason, the (OSCE) observers must take up their work as quickly as possible," he said.
The text of the OSCE decision said the aim of the mission would be to contribute "throughout the country ... to reducing tensions and fostering peace, stability and security".
The Kiev-based mission will in the beginning consist of 100 civilian monitors but that number may later expand by another 400 personnel.
It will initially be deployed in nine places outside Kiev, including Donetsk, a major city in largely Russian-speaking eastern Ukraine.
Advance teams will start deploying within 24 hours of Friday's decision, the text said.
But it did not specifically mention Crimea, leaving it unclear whether the observers would ever be able to go there.
The U.S. statement said: "Crimea is Ukraine. Only one participating state pretends that it is anything other than Ukraine."
A Western diplomat described the language as "constructive ambiguity" on the issue of Crimea, saying 56 OSCE countries defined Ukraine in the same way and that only Russia differed.
Russia has accused Ukrainian nationalists of intimidating Ukraine's large minority of Russian-speakers and ethnic Russians, many of them in the east and southeast, since the pro-Russian president, Viktor Yanukovich, was forced out last month.
Western powers largely dismiss Russia's characterization of the new authorities in Kiev as strongly influenced by the far-right, Ukrainian-speaking nationalists who hold some posts.
Military monitors from individual OSCE member states made several unsuccessful attempts to enter Crimea this month but were turned back and, on one occasion, warning shots were fired.
The OSCE has played a significant role in monitoring human rights and other issues in many places in the past - for example in the countries that emerged from the bloody collapse of Yugoslavia in the 1990s.
But diplomats say its work in recent years has been hobbled by renewed East-West tension.
Source: Yahoo News