A gag order has been placed on the details of the agreement.
This is one of the defense industry's most major arms deals in recent years, and is expected to include the purchase of marine systems and weapons from additional defense industries other than Israel Shipyards.
The agreement will help develop Israel Shipyards and allow the company to hire dozens of new workers in addition to its 500 employees.
Israel Shipyards was founded in 1959 as a government-owned company for ship maintenance and construction. Its most famous product is the Navy's Sa'ar missile boats, of which the company has manufactured some 30 units so far.
In the mid 1990s, the State sold Israel Shipyards to a group of businessmen, including Shlomi Fogel, Shlomo Shmeltzer and Sami Katzav. The company has also received a permit to load and unload goods from vessels, and serves as the first private port in Israel.
Defense Ministry reports say Israel's security exports totaled $7.5 billion in 2012.
According to figures compiled by the Israel Export and International Cooperation Institute, security exports make up some 10% of the State of Israel's exports and have grown in recent years despite the global economic crisis.