Israel will halt all annexation of Palestinian territories in exchange for establishing diplomatic ties with the UAE, the countries announced on Thursday.
The agreement, known as the Abraham Accord, came in a joint call between Sheikh Mohamed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces, US President Donald Trump and Israeli Prime Minister Benjamin Netanyahu.
In a joint statement, the US expressed its commitment to Middle East security in addition to further developing military co-operation with the UAE.
"Huge breakthrough today. Historic peace agreement between our two great friends, Israel and the United Arab Emirates," Mr Trump tweeted.
“This deal is a significant” step towards peace in the Middle East," he said at the White House.
The statement says that UAE and Israeli officials will meet “in the coming weeks” to sign agreements.
“This historic diplomatic breakthrough will advance peace in the Middle East region and is a testament to the bold diplomacy and vision of the three leaders, and courage of the United Arab Emirates and Israel to chart a new path that will unlock great potential in the region," the joint statement said.
"This normalisation of relations and peaceful diplomacy will bring together two of America’s most reliable and capable regional partners."
Sheikh Mohamed spoke about the agreement on Twitter.
"During a call with President Trump and Prime Minister Netanyahu, an agreement was reached to stop further Israeli annexation of Palestinian territories," he wrote.
"The UAE and Israel also agreed to co-operation and setting a road map towards establishing a bilateral relationship."
There was no time limit to the halt of annexation, but it aims to lead to a final negotiated settlement to the long-running conflict.
Thursday’s agreement does not change the UAE’s view of the peace process.
It remains committed to the Arab plan of a negotiated two-state solution, with East Jerusalem as the capital of an independent Palestinian state.
While there was no detail on the timeline for establishing diplomatic outposts, the agreement will allow travel between the two countries, trade – including of technology and goods – and co-operation in areas such as food security, climate change and energy, the statement said.
Diplomatic missions will be established in the future.
In recent months, UAE officials have been vocal in warning Mr Netanyahu against plans to annex much of the West Bank and Jordan valley.
UN, Arab and European officials said the annexation would effectively end any hope of a two-state solution.
The annexation, agreed to between Mr Netanyahu and Benny Gantz of the Blue and White party in a power-sharing agreement this year, did not take place on July 1 as planned.
On June 12, the UAE Minister of State and ambassador to the US, Yousef Al Otaiba, wrote a letter to the Israeli people in Hebrew, published in Israel's largest daily Yedioth Ahronoth.
Mr Al Otaiba warned Israelis that annexation would be a major impediment to Israel’s hope of establishing ties with the Arab world.
“Annexation will certainly and immediately upend Israeli aspirations for improved security, economic and cultural ties with the Arab world and with UAE,” Mr Al Otaiba wrote.
While Israel and the UAE have never had official ties until now, there have been gradual steps leading to Thursday’s call.
The Emirates has hosted Israeli athletes and officials at international conferences.
Israel will attend the delayed 2020 Expo next year and has an office at the International Renewable Energy Agency in Abu Dhabi.
Other Gulf nations, including Qatar and Oman, have ties with Israel, but the only Arab states with full diplomatic relations are Jordan and Egypt after peace agreements in 1994 and 1979.
Sheikh Abdullah bin Zayed, Minister of Foreign Affairs and International Co-operation, said the UAE-Israel accord was "a major breakthrough in Arab-Israeli relations" that "opens new horizons for peace and stability in the region".
"The United Arab Emirates has secured Israel's commitment to halting the annexation of Palestinian territories in order to sustain efforts to achieve a two-state solution," UAE Minister of State for Foreign Affairs, Dr Anwar Gargash, said shortly after the announcement.
"This decisive freeze on the annexation of Palestinian territories is a significant diplomatic achievement and comes in furtherance of the UAE’s belief that establishing normal relations with Israel will enable it to play a direct and constructive role in enhancing the region’s security and stability."
Dr Gargash said the UAE was calling for a return to direct negotiations between the Israelis and Palestinians "as the sole parties capable of reaching a permanent and sustainable solution to this conflict".
"The UAE seeks to build upon previous regional and international efforts aimed at reaching a solution to this conflict in reflection of the UAE's multilateral approach to sensitive regional issues," he said.
"The United States played a key role in this pragmatic step by the UAE, affirming its continued commitment to the Arab Peace Initiative and the rights of the Palestinian people to establish a Palestinian state with East Jerusalem as its capital."
Mr Trump's son-in-law and the face of the administration's Middle East peace plans, Jared Kushner, praised the US president's leadership.
"The president, like with all things, urged us to take an untraditional approach," Mr Kushner said.
"You can’t solve problems that remain unsolved by doing it the same way the people before you have tried and failed."