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Benjamin Netanyahu - left, Sheikh Mohammed Bin Zayed - right
The statement by Trump says that this diplomatic breakthrough would advance peace in the Middle East.
"HUGE breakthrough today! Historic Peace Agreement between our two GREAT friends, Israel and the United Arab Emirates!", Trump tweeted.
Under the agreement Israel has agreed to suspended its plans to annex parts of the West Bank. Muslims will also be able to visit and pray at the Al Aqsa Mosque in Jerusalem and the holy sites in the ancient city will remain open for worshippers of all faiths.
The US, Israel and UAE will now work towards achieving a similar diplomatic breakthrough with other nations in the Middle East.