Saudi Arabia will put $3 billion into a new joint fund with Iraq to spur development in the private sector.
The joint fund will be for the "benefit of the Saudi and Iraqi economies, with the participation of the private sector from both sides", the kingdom announced on Wednesday night after a visit by Iraqi Prime Minister Mustafa Al Kadhimi.
Saudi Crown Prince Mohammed bin Salman met Mr Al Kadhimi on Wednesday, during the visit aimed at boosting co-operation as Baghdad seeks to build closer ties to the Gulf.
Saudi Arabia's investments in Iraq are expected to increase to 10 billion riyals ($2.67bn) from about two billion riyals at present, the state-run SPA news agency said.
"Over the past few months relations with Saudi Arabia have accelerated in a positive direction," Mr Al Kadhimi said.
“We succeeded in overcoming a lot of the challenges that were obstructing the progress of the relationship.”
The pair also agreed to grow co-operation in renewable energy and maintaining stability in the global oil markets, a joint statement said.
Iraq is the second-largest producer in Opec, outranked only by Saudi Arabia.
The two countries signed three new agreements – one to avoid double taxation, another for co-operation in planning for economic diversification and private sector development, and the third on financing Saudi exports.
Mr Al Kadhimi's trip came after the countries reopened their Arar land border crossing in November for the first time since Riyadh cut diplomatic ties with Baghdad in 1990 when Iraqi dictator Saddam Hussein invaded Kuwait.
Mr Al Kadhimi, whose government sought to fast-track foreign investment, including Saudi support for energy and agriculture, is pushing for deeper co-operation with Riyadh.
He was scheduled to travel to Saudi Arabia on his first foreign trip as prime minister last July, but the visit was cancelled at the last minute when King Salman had an operation to remove his gall bladder.
During the trip, Mr Al Kadhimi and several members of his delegation undertook Umrah, an Islamic pilgrimage to Makkah and Madinah.
Mr Al Kadhimi, who was seen wearing the Ihram garment, was welcomed to Makkah by the governor of the city, Prince Khalid Al Faisal.
Meanwhile, Iraqi Foreign Minister Fuad Hussein discussed ways to strengthen co-operation between Baghdad and Riyadh.
"The two sides praised the growing relations and ways to enhance it further in light of the serious will of both countries to strengthen their ties," the Iraqi Foreign Ministry said.
Saudi-Iraqi security ties
Aside from investment and development, Mr Al Kadhimi said he and his delegation of senior ministers also talked about security.
Iraq will never become a launch pad for attacks on Saudi Arabia, Mr Al Kadhimi said.
There was speculation that the 2019 Abqaiq refinery attack was carried out from Iraq. This year a relatively unknown militant group in the country calling itself the Righteous Promise Brigade – considered by security experts to be a front for more entrenched Iran-backed militias – claimed an attack on Riyadh.
But Mr Al Kadhimi said this was “not true”.
"We will not allow any attack on the kingdom," he said after what his aides described as an hours-long meeting with Prince Mohammed.
"There haven't been any attacks" from Iraq, he said.
"There have been attempts by some to ... disrupt relations" between Iraq and Saudi Arabia, he said, without elaborating.
Both sides promised to continue efforts against extremism in the region and the world and said that by exchanging experiences between security agencies, the two countries could support efforts in Iraq under the International Coalition to Defeat ISIS.
Asked about US relations, Mr Al Kadhimi said his government entered a "new phase of American-Iraqi relations" through a strategic dialogue with President Joe Biden's government.
“We want to restructure the relationship and preserve it at the same time,” he said.
He also gave his support to the kingdom's latest initiative to end the conflict in Yemen. Saudi Arabia faced several drone attacks in recent months by Yemen's Iran-backed Houthi rebels.