Archbishop Chrysostomos II and Rabbi Yona Metzger signed the declaration in the Cypriot capital Tuesday.
Chrysostomos said the initiative was aimed at ending any "hostility or suspicion" that had "poisoned" Cypriot-Israeli relations in the past.
Metzger said Cyprus and Israel were partners and shared a similar history. He said the declaration could help improve cooperation.
The declaration comes amid blossoming ties between the east Mediterranean neighbors. The two countries are in talks to cooperate on exploiting offshore natural gas deposits.