Mr Trump announced the agreement on Friday, following a three-way phone call he had with Israeli prime minister Benjamin Netanyahu and Bahrain’s King Hamad bin Isa Al Khalifa.
The three leaders also issued a brief six-paragraph joint statement, attesting to the deal.
“Another historic breakthrough today!” Mr Trump tweeted.
The announcement on the 19th anniversary of the September 11, 2001 terrorist attacks came less than a week before Mr Trump hosts a White House ceremony to mark the establishment of full relations between Israel and the United Arab Emirates.
Bahrain’s foreign minister will attend the event.
It represents another diplomatic win for Mr Trump less than two months before the the presidential election and an opportunity to shore up support among pro-Israel evangelical Christians.
Just last week, Mr Trump announced agreements in principle for Kosovo to recognise Israel and for Serbia to move its embassy from Tel Aviv to Jerusalem.
“This is a historic breakthrough to further peace in the Middle East,” Mr Trump, Mr Netanyahu and King Hamad said in the statement.
“Opening direct dialogue and ties between these two dynamic societies and advanced economies will continue the positive transformation of the Middle East and increase stability, security, and prosperity in the region.”
Like the UAE agreement, Friday’s Bahrain-Israel deal will normalise diplomatic, commercial, security and other relations between the two countries.
Bahrain, along with Saudi Arabia, had already dropped a prohibition on Israeli flights using its airspace.
Saudi acquiescence to the agreements has been considered key to the deals.
Mr Trump’s son-in-law and senior adviser Jared Kushner noted that the agreement is the second Israel has reached with an Arab country in 30 days after having made peace with only two Arab nations, Egypt and Jordan, in 72 years of its independence.
“This is very fast,” Mr Kushner saids.
“The region is responding very favourably to the UAE deal and hopefully it’s a sign that even more will come.”
The agreement will likely be seen as a further setback to the Palestinians who tried unsuccessfully to have the Arab League condemn normalisation with Israel until they have secured an independent state.
That was one of the few cards still held by Palestinians in negotiations as peace talks remain stalled.
