Friday's move was expected under the repeal law Congress passed in December. Before "don't ask, don't tell," the military did not allow gays to serve. But in 1993 Clinton said gays would be discharged only if their sexual orientation became known.
Repeal has drawn strong opposition from some in Congress, and there was initial reluctance from military leaders who worried it could cause a backlash and erode troop cohesion on the battlefield.
But two weeks ago, the chiefs of the military services told Panetta that ending the ban would not affect military readiness.
Advocacy groups that fought for the change called the decision Friday long-overdue, while opponents said it's a political payoff to left-leaning gay and lesbian activists.
"The president's certification of repeal is a monumental step, not just for those forced to lie in order to serve, but for all Americans who believe in fairness and equality," said Human Rights Campaign President Joe Solmonese.
Elaine Donnelly, who heads the Center for Military Readiness, which has lobbied against repeal, said it will "undermine morale and readiness in the all-volunteer force."
The Pentagon is expected to spend the next 60 days preparing the troops for the change, and ironing out legal and technical details, including how it will affect housing, military transfers and other health and social benefits.
In most cases, the guidelines require that gays and lesbians be treated like any other member of the military.There will be differences, however. Same sex partners will not get the same housing and other benefits as married couples. Instead, they are more likely to be treated like unmarried couples.
Once the repeal is final, service members can no longer be discharged for openly acknowledging they are gay. That is the key change. And those who have been discharged previously based solely on the gay ban may apply to re-enter the force.
Service members may also designate their same-sex partners as beneficiaries for insurance and other benefits — something they may have avoided earlier for fear it would cause their dismissal.
One of the thornier issues is gay marriage.
An initial move by the Navy earlier this year to train chaplains about same-sex civil unions in states where they are legal was shelved after more than five dozen Congress members objected.
The training, lawmakers told Navy Secretary Ray Mabus, violated the 1996 Defense of Marriage Act by appearing to recognize and support same-sex marriages.