The Vatican said Wednesday it was preparing to sign its first accord with Palestine, two years after officially recognising it as a state.
"The bilateral commission of the Holy See and the State of Palestine, which is working on a comprehensive agreement" on the life and activity of the Catholic Church in Palestine, is putting the final touches to the treaty, the Vatican said.
"The agreement will be submitted to the respective authorities for approval ahead of setting a debate in the near future for the signing."
While it will be the first time the Roman Catholic Church signs a treaty with the State of Palestine, the Vatican has recognised the state since February 2013.
"The Holy See has identified the State of Palestine as such since the vote" by the UN general assembly to recognise it in November 2012, Vatican spokesman Federico Lombardi told AFP.
"In its annual directory the Palestinian representative is referred to as the representative of the State of Palestine," he said.
Israel immediately reacted with displeasure to the news.
"Israel heard with disappointment the decision of the Holy See to agree a final formulation of an agreement with the Palestinians including the use of the term 'Palestinian State'," an Israeli foreign ministry official said in an unsigned statement.
"Such a development does not further the peace process and distances the Palestinian leadership from returning to direct bilateral negotiations. Israel will study the agreement and consider its next step," the official said.
The agreement, 15 years in the making, may be signed this weekend during a visit by Palestinian President Mahmoud Abbas to the Vatican for the canonization of two new Palestinian saints.
It expresses the Vatican's "hope for a solution to the Palestinian question and the conflict between Israelis and Palestinians according to the Two-State Solution," said Antoine Camilleri, the Holy See's deputy foreign minister.
In an interview with the Vatican's Osservatore Romano newspaper, Camilleri said he hoped "the accord could, even in an indirect way, help the Palestinians in the establishment and recognition of an independent, sovereign and democratic State of Palestine."
The Vatican's position was seen by the Palestine Liberation Organization (PLO) as a "de facto" recognition.
"This includes the recognition of 1967 borders and thus Palestinian East Jerusalem, a courageous stance from the Vatican," said a Palestinian official on condition of anonymity.
The Palestinian Authority considers the Vatican one of 136 countries to have recognised Palestine as a state, although the number is disputed and several recognitions by what are now European Union member states date back to the Soviet era.