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A fuzzy logic controller (FLC) is designed for a battery energy storage system (BESS) to improve the stability of an interconnected multi-machine power system. The studied system consists of two generating areas interconnected by a long transmission line. A detailed model of BESS is developed for accurate dynamic assessment. The model takes into account the switching actions of the converter as well as the battery characteristics. This paper also describes the use of hysteresis technique to control directly the BESS output current. This reduces the complexity of the control system while at the same time provides a tight control of the BESS output. Test results under a variety of disturbances show the proposed BESS is effective in damping out power system oscillations.