Israel and Bahrain have begun negotiating a free trade agreement, the Economy Ministry said on Tuesday.
Economy Minister Orna Barbivai met her Bahraini counterpart in Manama on Monday to kick off the negotiations, her office said.
Israel normalized diplomatic relations with Bahrain under the Abraham Accords signed in September 2020, along with the UAE under U.S. sponsorship.
Then Prime Minister Naftali Bennett visited the Gulf state in what was the first public visit by an Israeli premier.
While economic ties with the UAE has since taken off, Israel's trade with Bahrain has lagged far behind.
In May, Israel forged a free trade deal with the UAE, its first with an Arab country, that officials estimate will increase trade from $1.2 billion to $10 billion in a 5-year time period.
Israel-Bahrain trade in 2021 totaled just $7.5 million.
"A free trade agreement with Bahrain as part of strengthening broader regional cooperation will strengthen economic relations between the countries, increase the scope of investments, remove trade barriers and create opportunities for entrepreneurs and companies in Israel and Bahrain," Barbivai said.
Earlier this year, Israel and Bahrain signed a historic Memorandum of Understanding (MOU) between the defense establishments of the two countries, set to promote intelligence sharing, joint military drills and closer ties between the defense industries in both nations.
This agreement, amongst other diplomatic steps, was a message of cooperation aimed at regional archrival Iran.