Israel and Germany have upgraded bilateral ties, as Chancellor Angela Merkel and half her cabinet visit Israel to mark its 60th anniversary.
It is Israel's first agreement for annual talks, but Germany's sixth
She has chaired a joint cabinet session and will address parliament on Tuesday, in an unprecedented honour.
Political, cultural, economic and social relations will all be strengthened, said a joint statement.
In 60 years since the Nazi genocide of European Jews, Germany has become Israel's staunchest ally in Europe.
The agreement institutes annual meetings at prime ministerial, ministerial and cabinet levels.
Germany already has similar agreements with France, Italy, Spain, Poland and Russia. It is Israel's first such agreement with another state.
Before the cabinet session, Ms Merkel visited the Yad Vashem Holocaust memorial in Jerusalem accompanied by Israeli Prime Minister Ehud Olmert and eight ministers from each government.
In recognition of Germany's responsibility for the Shoah, the German government underlines with the first German-Israeli consultations its determination for a joint shaping of the future
They attended a memorial service for the Holocaust, or Shoah in Hebrew, in which six million Jews were killed by the Nazis during World War II.
Signing Yad Vashem's guest book, Ms Merkel wrote: "In recognition of Germany's responsibility for the Shoah, the German government underlines with the first German-Israeli consultations its determination for a joint shaping of the future."
An invitation to address Israel's parliament, the Knesset, has in the past been reserved for visiting monarchs and heads of state.
Some Israeli politicians have voiced objections to the speech being in the German language, which some Holocaust survivors and their descendants still find offensive.
The visit focuses on Israeli-German ties, rather than the Palestinian question, but Mrs Merkel reiterated German support for a two-state solution at an arrival ceremony at Tel Aviv airport.
Her government said last week that it would host an international conference to help the Palestinians prepare for statehood, and she spoke to Palestinian leader Mahmoud Abbas by telephone before leaving Germany.