The comprehensive plan seeks to close the large economic gaps between Jewish and Arab Israelis in society by providing funds for the development of all Arab communities in Israel, including Muslims, Christians, Druze and Bedouins.
An investment of NIS 15 billion (£2.6bn) will go towards areas such as education, transport, welfare services, employment and housing in Arab communities.
The plan was developed in partnership with Arab leadership and was proposed by the Ministry of Finance and Ministry for Social Equality and was supported by Israeli Prime Minister Benjamin Netanyahu.
In a statement, Mr Netanyahu said: “This is a significant addition designed to assist minority populations and reduce [societal] gaps”.
He added: “The plan will lead to the end of single-family home construction and a transition to high-rise construction, as exists throughout the country. At the same time, the plan will strengthen law enforcement in the minority sector with emphasis on illegal construction”.
The Minister of Social Equality, Gila Gamliel (Likud), said the development plan was “an important and historic step towards narrowing gaps and enhancing social equality in Israel”.