Dubai: Israel and the UAE agreed on Thursday to normalise relations in a landmark US-brokered deal under which the Jewish state would halt further annexation of Palestinian territory.
The agreement, first announced by US president Donald Trump on Twitter, will see Israel halt its plan to annex large parts of the occupied West Bank, according to the UAE.
It would make the United Arab Emirates only the third Arab country Israel has diplomatic relations with after its peace deals with Egypt and Jordan.
Establishing diplomatic ties between Israel and Washington's West Asia allies, including the wealthy conservative monarchies, is a key goal of Trump's strategy in the region.
The controversial Trump plan, unveiled in January, offered a path for Israel to annex territory and Jewish West Bank settlements, communities considered illegal under international law.
"HUGE breakthrough" Trump tweeted Thursday, calling it a "Historic Peace Agreement between our two GREAT friends".
Israeli prime minister Benjamin Netanyahu said it was a "historic day" in response to Trump's tweets about the deal.
He will address Israeli TV audiences in an address at 5 pm (GMT).
Israel agreed "to stop further... annexation of Palestinian territories" under the plan to normalise relations, the Crown Prince of Abu Dhabi tweeted following Trump's bombshell.
"During a call with President Trump and Prime Minister Netanyahu, an agreement was reached to stop further Israeli annexation of Palestinian territories," Sheikh Mohammed bin Zayed Al-Nahyan wrote on his verified Twitter account.
However Palestinian Islamist group Hamas, which runs the coastal Gaza Strip, quickly said the agreement "does not serve the Palestinian cause".
Abdel Fattah al-Sisi, president of Egypt, which signed a treaty with Israel in 1979 to opposition from across the Arab world, praised the new deal and said he hoped it would bring "peace" to the Middle East.
Trump suggested to reporters that more diplomatic breakthroughs between Israel and Arab countries in the region were expected but gave no further details.
"Things are happening that I can't talk about," he said.
US secretary of state Mike Pompeo described it as "a historic day and a significant step forward for peace in the Middle East".
"The United States hopes that this brave step will be the first in a series of agreements that ends 72 years of hostilities in the region," Pompeo said.
The agreement would be signed at the White House at a future date, Pompeo said.
In a joint statement, Trump, Netanyahu and Prince Mohammed said they had spoken on Thursday "and agreed to the full normalisation of relations between Israel and the United Arab Emirates".
Israeli and UAE delegations will meet in the coming weeks to sign bilateral agreements regarding investment, tourism, direct flights, security and the establishment of reciprocal embassies, they said.
"At the request of President Trump with the support of the United Arab Emirates, Israel will suspend declaring sovereignty over areas outlined in the President's Vision for Peace and focus its efforts now on expanding ties with other countries in the Arab and Muslim world," the statement said.
"The United States, Israel and the United Arab Emirates are confident that additional diplomatic breakthroughs with other nations are possible, and will work together to achieve this goal," it added.