The Israel Ministry of Tourism will be able to place ads on pitchside billboards and television screens and run events in the club's new Emirates Stadium. The deal starts from next season to coincide with the club moving to the stadium from its current Highbury home.
The club took the unusual step of clearing the deal with the United Arab Emirates, which owns the airline Emirates, because the Arab state does not have diplomatic relations with Israel.
The deal includes advertising space on digital perimeter boards and ads broadcast via a network of 450 High Definition LCD screens throughout. The digital perimeter boards will be seen in the 198 territories where the Premier League is broadcast.
The tourism ministry will also have access to the club's official website Arsenal.com, database and magazine to promote Israel as a holiday destination, as well as being able to use the Emirates stadium to hold tourism-related events and shows.
A spokesman for the Israeli tourism ministry said: "The purpose is to broaden Israel's appeal to sun and fun-seekers."
The tourism ministry has previously looked at tying up deals with Italian club Juventus, but this fell through after another sponsor, Libyan oil company Tamoil, rejected the move.
The sponsorship is likely to be a talking point at North London rivals Spurs, which has long been known as a club with many Jewish supporters.
If you have an opinion on this or any other issue raised on Brand Republic, join the debate in the .