The deal, the largest such agreement the US has ever had with any country, amounts to USD 3.8 billion a year beginning in budget year 2019, compared with USD 3.1 billion the US gave Israel annually under the current 10-year deal that expires in 2018.
"This commitment to Israel's security has been unwavering and is based on a genuine and abiding concern for the welfare of the Israeli people and the future of the state of Israel," President Barack Obama said in a statement.
Obama's national security adviser Susan Rice, who witnessed the signing, called it a sign of Washington's "unshakable commitment" to the security of the Jewish state.
She said the agreements makes clear that the US "will always be there for the state of Israel and its people today, tomorrow and for generations to come."
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"Everyone can see and feel the special relationship between our countries and our people."
Under the agreement, Israel's ability to spend part of the funds on Israeli military products will be phased out and eventually all of the money must be spent on American military industries.
Israel's preference for spending some internally had been a major sticking point in the deal.
The new agreement eliminates Israel's ability to spend a fraction of the funds on fuel for its military.
The official said a possible meeting between the
Israelis and Palestinians would be part of the discussions tomorrow.
"He's hopeful to bring the two sides together to discuss peace," the official said of the President.
Asked how quickly would he like to get a Middle East peace process going, the official said, "I do think it's a very high priority for the administration."
"I don't want to get ahead of the meeting, but certainly those topics will be discussed," the official said, adding that Iran will be a critical piece of the discussion.
The recent UN resolution on settlements is another area of discussion between the two leaders.
"The posture that the US takes at the UN under this administration would be to veto anything that is biased against Israel. So we view the vote that took place as biased against Israel. We'll have to see what the potential impact is to Israel and so I'm not sure what can be done yet," the official said.