Israel and the United Arab Emirates on Sunday signed a customs agreement, Israeli officials said, the final step of a free trade deal inked after the two countries normalised ties.

Signed in May 2022, the free trade deal is set to take effect on April 1 and is the first of its kind between Israel and an Arab country, Israeli authorities said.

Hailing the "historic" free trade pact, Israeli Prime Minister Benjamin Netanyahu said it would "reduce customs duties, lower the cost-of-living and inject energy into business between Israel and the UAE".

A statement from the Israeli foreign ministry said the free trade deal would see customs duties "lowered or cancelled on approximately 96 percent of goods and will allow Israeli companies to gain access to UAE government tenders".

Bilateral trade between the two countries last year registered more than $2.5 billion, excluding software and services, making the Gulf country "Israel's 16th largest trading partner" the ministry added.

The deal was signed by Israeli Foreign Minister Eli Cohen and the UAE's ambassador to Israel Mohamed Al Khaja in a ceremony overseen by Netanyahu.

The UAE and Israel signed in September 2020 a US-brokered deal establishing ties between the two countries, part of a series of deals with Arab countries that became known as the Abraham Accords.

"The taking effect of the free trade agreement is important news for the Israeli economy, for the strengthening of ties with the UAE and is further testament to the importance of the Abraham Accords," Cohen said Sunday.

Israel's foreign ministry spokesman Lior Hayat told AFP the customs deal marks "the final step" of the free trade agreement that is due to "take effect on April 1".

The UAE was the first Gulf country to normalise ties with Israel and only the third Arab nation to do so after Egypt and Jordan.

The Abraham Accords broke with long-standing pan-Arab policy to isolate Israel until it withdraws from the occupied territories and accepts Palestinian statehood.