The report by Edinburgh City Council officers was approved by 56 out of 58 councillors.
The tram was necessary to link growing areas of the city, according to the report.
The business case will now be submitted to the Scottish Executive for final approval in February. If successful, construction of the network would begin in April 2007, with the first trams set to be running in December 2010.
Council leader Ewan Aitken (Lab) said there was 'an overwhelming case for trams in Edinburgh'.
Read the report here
Regeneration & Transport