Formally, the two countries have been at war with each other for decades.
Sudan fought on the side of neighboring Egypt against Israel in 1967 and for many years supported hardline Islamist groups.
But now the battle ax was buried.
"Sudan and Israel have agreed to normalize relations," it said in a statement signed by the United States in addition to the parties.
It was also US President Donald Trump who first revealed the news, immediately after he removed Sudan from the list of countries that the US considers sponsoring terrorism on Friday.
A decision that opens up for American aid and international investment and has been hotly sought after by the transitional government in Khartoum.
Feather in Trump's hat
The announcement of the peace agreement is a diplomatic feather in Trump's hat, which with just over a week left until the US presidential election is behind the challenger Joe Biden in the opinion polls.
In September, the United Arab Emirates and Bahrain signed similar agreements, and Trump has predicted that more Arab countries will join, including Saudi Arabia.
From Palestine, which is becoming increasingly isolated as the united front of the Arab countries against Israel is now broken up, competitors PLO and Hamas agree to distance themselves from the agreement with Sudan.
The office of Palestinian President Mahmoud Abbas "condemns" the agreement, while Hamas calls Sudan's decision a "political sin".
Damages for terrorist acts
Trump unveiled his plan to drop blacklisting Sudan earlier this week.
Shortly afterwards, Israel sent a delegation to Khartoum to discuss normalization of relations.
According to Washington, Sudan has agreed to pay 335 million dollars, equivalent to almost three billion kronor, to avoid the blacklisting.
The money will go to survivors of the attacks on the US embassies in Kenya and Tanzania in 1998. The terrorist attack was carried out by al-Qaeda, which had a refuge in Sudan under the then dictator Omar al-Bashir.