Israel signed a free trade agreement with the United Arab Emirates on Tuesday, its first big trade accord with an Arab state and a move aimed at boosting trade between the two Middle East nations.

The pact was signed in Dubai after months of negotiations.

"Done," Israel's Ambassador to the UAE Amir Hayek said on Twitter, replying to another tweet he posted earlier saying "the UAE and Israel will sign FTA in the next hour".

The UAE Ambassador to Israel, Mohamed Al Khaja, said the agreement was an "unprecedented achievement". "Businesses in both countries will benefit from faster access to markets and lower tariffs as our nations work together to increase trade, create jobs, promote new skills and deepen cooperation," he added.

President of the UAE-Israel Business Council Dorian Barak said the trade agreement defined tax rates, imports and intellectual property, which would encourage more Israeli companies to set up offices in the UAE, particularly in Dubai.

The council predicts there will be almost 1,000 Israeli companies working in or through the UAE by the end of the year doing business with South Asia, the Far East and Middle East.

"The domestic market doesn't represent the entirety of the opportunity. The opportunity is really setting up in Dubai, as many companies have, in order to target the broader region," Barak told Reuters by phone.

Ahead of the signing, Israel's economy ministry had said the accord would remove tariffs on food, agriculture, cosmetics, medical equipment and medicine.

"Together we will remove barriers and promote comprehensive trade and new technologies, which will form a solid foundation for our common path, will contribute to the well-being of citizens and make it easier to do business," Israel's Minister of Economy and Industry Orna Barbivai said on Monday.

The agreement has been signed amid escalating Israeli-Palestinian violence.

The UAE foreign ministry on Monday condemned the storming of the Al Aqsa compound in Jerusalem by "extremist settlers under the protection of Israeli forces".

The foreign ministry, in the written statement, also asked "Israeli authorities to take responsibility for reducing escalation and ending all attacks and practices that lead to the continuation of tensions while underscoring the need to exercise maximum restraint to avoid further instability."

The same day invited media were told they could no longer attend the signing. No reason was given for the sudden change.

Al Aqsa is the third holiest site in Islam and is revered in Judaism as the Temple Mount — a vestige of their faith's two ancient temples.

Israel's Barbivai told Israeli radio on Tuesday she had heard "nothing out of the ordinary" about the Al Aqsa violence so far during her visit to the UAE.

For oil-rich UAE, the deal with Israel is its second bilateral free trade agreement after signing a similar accord with India in February. It is in bilateral trade talks with several other countries, including Indonesia and South Korea.

The UAE has been aggressively pursuing these deals in a bid to strengthen its economy and status as a major business hub following the hit it took from the coronavirus pandemic.

Israel and the UAE established ties in September 2020 in a US-brokered deal that broke with decades of Arab policy that had called for a Palestinian state before ties with Israel.

Bahrain and Morocco also recognised Israel in the same year.