The deal eliminates bilateral tariffs on 96 percent of goods and aims to boost trade volume between the two countries to up to $10 billion.
Israel has signed a free trade agreement with the United Arab Emirates that reduces or removes tariffs and over time targets lifting annual bilateral trade to more than $10 billion.
The pact was signed in Dubai on Tuesday by Israel's Minister of Economy and Industry Orna Barbivai and her counterpart, UAE Minister of Economy Abdulla bin Touq Al Marri, after months of negotiations.
Tariffs will be eliminated on 96 percent of goods with the UAE predicting the Comprehensive Economic Partnership Agreement would boost bilateral trade to more than $10 billion a year within five years.
Emirati trade minister Thani Al Zeyoudi said the trade deal wrote "a new chapter in the history of the Middle East."
With the #UAEIsraelCEPA signed, sealed and delivered, we have written a new chapter in the history of the Middle East. Our agreement will accelerate growth, create jobs and lead to a new era of peace, stability, and prosperity across the region.— د. ثاني الزيودي (@ThaniAlZeyoudi) May 31, 2022
"Our agreement will accelerate growth, create jobs and lead to a new era of peace, stability, and prosperity across the region," he wrote on Twitter.
Two-way trade between Israel and the UAE last year totalled some $900 million dollars, according to Israeli figures.
UAE-Israel Business Council president Dorian Barak predicted that trade would soon multiply between the regional powerhouse economies.
"UAE-Israel trade will exceed $2 billion in 2022, rising to around $5 billion in five years, bolstered by collaboration in renewables, consumer goods, tourism and the life sciences sectors," he said in a statement.
"Dubai is fast becoming a hub for Israeli companies that look to South Asia, the Middle East and the Far East as markets for their goods and services."
Nearly 1,000 Israeli companies will be working in and through the UAE by year's end, he said.
The UAE was the first Gulf country to normalise ties with Israel and only the third Arab nation to do so after Egypt and Jordan.
Talks for a free trade agreement began in November and concluded after four rounds of negotiations.
The latest was held in March in Egypt between Israeli Prime Minister Naftali Bennett and Sheikh Mohammed bin Zayed Al Nahyan, who became UAE president this month after the death of his ailing half-brother Sheikh Khalifa.
Israel had in March hosted a meeting of the top diplomats from the United States, UAE, Bahrain and Morocco.
Sudan in 2020 also agreed to normalise ties with Israel, but the strife-torn northeast African country has yet to finalise a deal.
Israel has already struck free trade agreements with other countries and blocs, including the United States, European Union, Canada and Mexico.
In February, Israel signed a trade deal with Rabat to designate special industrial zones in Morocco.