Israeli military officials said the exercise, dubbed Cooperation Mako, would take place next month in the Black Sea and involve simulated combat between missile boat fleets as well as search-and-rescue drills.
"This marks the first time a unit of the Israel Navy will fully participate in an operational NATO exercise," said an Israeli military statement. Israel had previously held only observer status in such maneuvers.
Alon Ben-David, Israel analyst for Jane's Defense Weekly, said Cooperation Mako aimed mainly to improve NATO security missions in the Mediterranean and that Israel was especially interested in combined air force exercises.
"Given Israel's strategic reality, it is crucial to be part of a defensive coalition," Ben-David said.
Israel, Algeria and Morocco agreed in April to join NATO counter-terrorist patrols along their shores.
Ben-David noted Israel has stepped up its cooperation with foreign military forces as part of preparations for a possible showdown with Iran, whose nuclear program and calls for the Jewish state's elimination have raised concern in the West.
'Iran will behave differently'
Iran, the world's fourth-biggest oil exporter, says it seeks nuclear technology for energy needs only.
Some Western officials have speculated that Israel would eventually apply to join NATO's 26 member-states. "If Iran feels that Israel is ... in the pact, it will behave differently," former Spanish Prime Minister Jose Maria Aznar said in March.
But full membership is seen as unlikely in Israel, given its tradition of going it alone on matters of top military priority.
Believed to have the Middle East's only nuclear arsenal, Israel sent warplanes to bomb Iraq's atomic reactor in 1981 and has not ruled out similar action against Iran. For now, though, it backs US-led efforts to defuse the dispute with diplomacy.
"A defense pact has advantages and disadvantages," IDF Chief of Staff Lieutenant-General Dan Halutz, told the Yedioth Ahronoth newspaper this month. "Under a NATO pact, every decision would require consensus of 26 nations."
US President George W. Bush has pledged to defend Israel should it come under Iranian attack. Some analysts interpreted the statement as an admonition to Israel from its chief ally not to launch a preemptive strike on Iran unilaterally.