The islands of Tiran and Sanafir, located at the southern entrance to the Gulf of Aqaba, will be formally demarcated as being in Saudi waters under a treaty announced on Saturday by Cairo, which has had de facto control over them since 1950. In return for sovereignty over the Red Sea islands, Saudi will provide Egypt with $16 billion in aid.
Ya'alon said the military appendix in the Israel-Egypt Peace Treaty had to be reopened as a result of the agreement over the islands, which are located some 200 kilometers south of Eilat.
The United States also signed off on the inclusion of Saudi Arabia in the appendix, as a representative of the international peacekeeping force deployed to the Sinai Peninsula as part of the peace treaty between Egypt and Israel.
However, the Justice Ministry said that "the peace treaty between Israel and Egypt, including its appendixes, has not been opened. To our understanding, as part of the agreement between Egypt and Saudi Arabia there are arrangements meant to ensure no violation is made and the continued application of the existing arrangements and commitments in the peace treaty between Israel and Egypt, as it relates to the two islands. The entire issue is still being examined."
Israel has also agreed to allow the construction of a bridge connecting Saudi Arabia to Egypt, as part of the Saudi plan for the islands' development.
In 1967, Egypt blocked the Strait of Tiran, a move that prompted Israel to launch the Six-Day War. In its 1979 peace deal with Israel, Cairo promised to respect freedom of shipping in Aqaba and Eilat.
Ya'alon said Saudi Arabia has given Israel written assurances the kingdom will guarantee Israel freedom of passage in the Tiran Straits.
Eilat is Israel's only port in the Gulf of Aqaba and the Red Sea, while Aqaba is Jordan's sole outlet there.
Israeli commercial vessels use the Tiran Straits to get from the Eilat bay to the Red Sea and from there to the Horn of Africa and to Asia, while the Israeli Navy sails from the Mediterranean Sea through the Suez Canal to the Red Sea to conduct training on a regular basis.
Senior diplomatic officials said earlier this week that Egypt told Israel about its negotiations with Saudi Arabia in advance, and Prime Minister Benjamin Netanyahu had already briefed the cabinet about the impending agreement two weeks ago.
MK Tzachi Hanegbi (Likud), a long-time Netanyahu confidant, said the treaty would not threaten Israel. "It relates to us and it does not bother us," Hanegbi, who heads the Knesset's Foreign Affairs and Defense Committee, told Army Radio.
"The Saudis, who are committed to freedom of shipping under international law, will not harm the essence of the agreement between Egypt and us in this regard, and freedom of shipping in Aqaba and Eilat will remain as is."
For its part, Riyadh is keeping a frosty posture to Israel.
"There will be no direct relationship between the kingdom and Israel due to the return of these islands," Saudi Foreign Minister Adel al-Jubeir told Egypt's CBC television on Sunday.
But in an apparent allusion to Egyptian-Israeli relations, he added: "There is an agreement and commitments that Egypt accepted related to these islands, and the kingdom is committed to these."
Some Israeli commentators suggested that the islands treaty might make it easier for Islamist militants to reach the Sinai.
Hanegbi dismissed this as "paranoid anxiety" and welcomed the closing of ranks by Sunni Muslim Arab states that share Israeli hostility to Shi'ite Muslim power Iran and its Lebanese guerrilla ally Hezbollah, as well as to Sunni Islamist insurgents racking the region.
"We have an interest in expanding the cooperation in the Sunni axis, which is struggling against the radical axis headed by Iran," said Hanegbi.
"The more the Saudis, and the Gulf states in general, connect to the countries with which we are at peace and create with them a strategic front against ISIS, Iran, Hezbollah, against all the players that are our actual enemies, ultimately the effect will be unifying and not weakening."
US reviewing Sinai peacekeeping operations
The US military has formally notified Egypt and Israel that it is reviewing peacekeeping operations in the Sinai, including ways to use technology to do the job of some of the 700 US troops there.
Installed to monitor the demilitarization of the Sinai under the 1979 Egyptian-Israeli peace accord, the Multinational Force and Observers (MFO) mission has come under increased scrutiny over the past year after six peacekeepers were wounded by a roadside bomb. Four US. soldiers were among them.
The United States believes that the structure of the more than three-decade old operation may be outdated.
"I don't think anyone's talking about a (complete) withdrawal. I think we're just going to look at the number of people we have there and see if there are functions that can be automated or done through remote monitoring," said Navy Captain Jeff Davis, a Pentagon spokesman.
Changing the MFO mission could be a sensitive proposition to both Israel and Egypt.
Cairo sees the MFO as part of a relationship with Israel that, while unpopular with many Egyptians, brings it $1.3 billion in annual US defense aid, sweetening the foreign-enforced demilitarization of their sovereign Sinai territory.
For the Israelis, the MFO offers strategic reassurance, especially following Egyptian President Abdel Fattah al-Sisi's toppling two years ago of an elected Islamist regime hostile to the Jewish-majority state next door.
Among the options being considered are use of remote sensors or surveillance to do some of the work in the Sinai, the peninsula that lies between Israel, the Gaza Strip and the Suez Canal.
"What we are looking at is, this has been in existence for 30 years and the mission has remained largely unchanged," Davis said.
"What we want to be able to do is look at the core things that that mission provides and see how we can leverage modern technologies, remote surveillance capabilities, etc., to be able to carry out that mission."
Egyptian security efforts in the Sinai have suffered major setbacks, including the Oct. 31 downing of a Russian airliner and Friday's bombing of two armored personnel carriers that killed seven.
Islamic State insurgents claimed responsibility for both incidents.
The Associated Press contributed to this report.