“Dan will support US efforts to advance a more peaceful and interconnected region, deepen and broaden the Abraham Accords, and build the Negev Forum,” Mr Blinken tweeted.
Signed in 2020, the Abraham Accords established relations between the UAE and Bahrain with Israel. Morocco and Sudan subsequently signed similar agreements with Israel.
Established in 2022, the Negev Forum is intended to be an annual platform for the UAE, Israel, Bahrain, Morocco, Egypt and the US, focusing on developing regional projects.
Mr Shapiro, who has had a long career in public service, most recently served as director of the N7 Initiative and as a distinguished fellow at the Atlantic Institute.
He tweeted that he was "deeply honoured" to join the State Department's Near Eastern affairs division and looked forward to "working with partners to help advance a more peaceful, prosperous, integrated region".
The N7 Initiative, which seeks to broaden relations between the Arab world and Israel, congratulated Mr Shapiro on his appointment.
“The Biden administration could not have picked a better person to lead US diplomacy to advance regional integration,” said William Wechsler, senior director of the initiative.
“Dan’s new position is really a continuation of the role he has been playing at the N7 Initiative, and the N7 Initiative will continue to support him and his counterparts abroad in their efforts to demonstrate the benefits of normalisation to the peoples of the region.”
Mr Shapiro has focused much of his career on the Middle East.
He was US ambassador to Israel under president Barack Obama from 2011 to 2017. Mr Shapiro was also a senior policy adviser to Mr Obama’s campaign.
He was also senior director for the Middle East and North Africa at the White House National Security Council.
The announcement comes as Mr Blinken acknowledged that Israel's settlement expansions were hurting the prospects of normalisation with Saudi Arabia.
“We’ve told our friends and allies in Israel that if there's a fire burning in their back yard, it's going to be a lot tougher, if not impossible, to actually both deepen the existing agreements, as well as to expand them to include potentially Saudi Arabia,” he told the Council of Foreign Relations on Wednesday.
Mr Blinken has said helping Israel improve relations with Saudi Arabia and other countries in the region is a priority.
The State Department said Mr Shapiro's new position reflects how seriously it is taking the process.
“It is a recognition that adding another senior adviser to the department to work on this portfolio particularly would be a value added,” State Department spokesman Matthew Miller said.