Jordan and Israel have agreed to build a Palestinian town on occupied Palestinian land, a senior Israeli official said on Thursday, a deal that could help cement ties between the two neighbours.

Israel and Jordan signed the agreement on Thursday on the outskirts of Ramallah, the capital of the West Bank, where Palestinians have lived for decades under Israeli military rule.

The agreement will allow the two states to construct Palestinian towns and villages and to build schools and medical clinics, said Majdal Shams, a spokesman for Israel’s Coordinator of Government Activities in the Territories, or COGAT.

The Israeli official spoke on condition of anonymity because the agreement was not officially announced.

Shams said the agreement is a step towards an eventual Palestinian state in the West Wall area of the occupied West Bank.

The announcement was welcomed by Jordan’s Prime Minister Nasser Judeh, who called it a “historic” and “historic step” that would pave the way for peace.

Judeh’s government is seeking the long-sought recognition of the Palestinians as a state, but is wary of a settlement that could be seen as a precursor to Israeli withdrawal from the West Jerusalem area.

The two countries have faced off in a number of disputes over disputed lands, including in East Jerusalem.

Palestinian officials in Ramallah said that the agreement signed by Jordan and the two-state solution will allow for the establishment of two Palestinian communities in the Jordan Valley, which Palestinians claim as part of their future capital.

Jerusalem Post reporter Shira Tibbits contributed to this report.

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