The project envisions a new desalination plant at Aqaba as the lynchpin of a sharing deal linking the Red and Dead Seas and Lake Tiberias and end-users in all three parties to the deal.
"It gives a glimmer of hope that we can overcome more obstacles in the future," said Sylvan Shalom, Israel's Minister of Energy and Water Resources at the signing yesterday."
"We showed that we can work together despite the political problems," said the Palestinian water minister, Shaddad Attili.
The pact, signed at the World Bank's headquarters in Washington, will see Jordan providing 50 million cubic litres of desalinated water to Israel's Red Sea resort of Eilat.
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In exchange, the Jewish state will provide northern Jordan with the same amount of water from the Sea of Galilee.
It will also see Israel raising its annual sales of water to the Palestinian Authority by 20-30 million cubic metres a year, up from the current level of 52 million cubic metres.
He also noted the economic aspects of supplying cheap desalinated water to neighbouring states, the environmental angle of "saving the Dead Sea" and the "strategic-diplomatic" aspect of the deal, coming amid the struggling peace talks between Israel and the Palestinians.
"This is a breakthrough after many years of efforts," he told the radio station. "It is nothing less than a historic move."
He said that the next step would be an international tender for the entire project - building the desalination plant in Aqaba and laying the first of the four pipes for transporting the water.
The plan envisions experimenting with mixing the brine with water in the Dead Sea.
"Minister Shalom needs to recognise that the canal project is not environmentally nor economically sound, and any attempt to connect the subject of the Dead Sea are only doing damage to other sensible projects of water exchange," the group said in a statement.