Israel has agreed to halt plans to annex parts of the West Bank sought by Palestinians, as part of a deal to engage full diplomatic relations with the United Arab Emirates.
The agreement between Israel and the UAE was brokered by US President Donald Trump's administration.
The announcement makes the UAE the first Gulf Arab state to do so and only the third Arab nation to have active diplomatic ties to Israel.
"Today we usher in a new era of peace between Israel and the Arab world," Israeli Prime Minister Benjamin Netanyahu said in a nationally televised statement.
"There is a good chance we will soon see more Arab countries joining this expanding circle of peace."
Mr Trump tweeted a statement from the countries, acknowledging the deal.
He then told reporters in the Oval Office that it was a "truly historic moment".
"Now that the ice has been broken, I expect more Arab and Muslim countries will follow the United Arab Emirates," he said.
The recognition grants a rare diplomatic win to Mr Trump ahead of the November election as his efforts to see an end to the war in Afghanistan have yet to come to fruition while efforts to bring peace between Israel and the Palestinians have made no headway.
Israel and the UAE also have been among Mr Trump's closest foreign allies.
For Israel, the announcement comes after years of suggestions by Mr Netanyahu that his Government enjoys closer ties to Arab nations than publicly acknowledged.
Mr Netanyahu has sought to build settlements on lands sought by the Palestinians and embraced a US proposal that would allow him to annex large parts of the occupied West Bank while granting Palestinians limited autonomy in other areas.
For the UAE, it further burnishes its international campaign to be seen as a beacon of tolerance in the Middle East despite being governed by autocratic rulers.
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