Pro-Palestinian protesters outside OECD headquarters in Paris
Members of the group of rich nations, the OECD, have voted unanimously to invite Israel to join, despite Palestinian objections.
Joining the Organisation for Economic Cooperation and Development is thought likely to boost Israel's economic standing and help attract investment.
But Palestinians say Israeli actions in the occupied West Bank contradict OECD values on human rights and free trade.
The 31-member OECD said Slovenia and Estonia would also be invited to join.
The Organisation's Secretary-General, Angel Gurría, hailed the move as a "new chapter" in the body's history.
It "confirms our global vocation as the group of countries that search for answers to the global challenges, and establish standards in many policy fields such as environment, trade, innovation or social issues," he said.
Israeli Finance Minister Yuval Steinitz hailed the move as "historic".
It is "a historic success... because it gives legitimacy to Israel as an advanced and developed country," he told public radio.
On Sunday, Israel's trade minister, Binyamin Ben-Eliezer, accused the Palestinian Authority, including Prime Minister Salam Fayyad, of trying to derail Israel's application to join the 31-member group.
The Palestinian Authority's foreign ministry had written to OECD member states, urging them to vote to delay inviting Israel.
"Accepting Israel means giving legitimacy to its policies and accepting its aggressive and racist practices against the Palestinian people," the letter signed by Foreign Minister Riyad al-Maliki said.
"We view this as very serious and dangerous, because it helps Israel continue to take control of the Palestinian lands and economy, including East Jerusalem and the settlements in the West Bank" the letter said.
It said checkpoints and other restrictions in the West Bank, which Israel says are for security, were harming Palestinian economic development and contrary to OECD principles of free trade.
Palestinian campaign groups have also said the OECD did not pay enough attention to Israel's human rights record during the application process.
Pro-Palestinian activists protested outside the organisation's headquarters in Paris last week.
A unanimous vote was required for Israel to join.
Switzerland, Ireland and Norway had expressed reservations in connection with Israel's inclusion of figures from settlements in the West Bank - illegal under international law - in the data supporting its membership application.
Israel will rank in the bottom third of the OECD countries in terms of national income and income per capita.
The proportion of Israeli citizens living in poverty, 20%, is higher than in any member state, which prompted the Israeli newspaper Haaretz to report that Israel would become the OECD's "poorest member".
The OECD praised Israel's scientific and technological progress as having "produced outstanding outcomes on a world scale".
But it has called on Israel to improve education standards, and levels of poverty and inequality - particularly among its ultra-orthodox Jewish communities and the Israeli-Arab minority.
The OECD said its member countries hoped membership would bring all three new countries "closer to OECD standards in all fields".