The agreement would mark a major breakthrough in relations between the countries which have been formally at war since 1948 — but obstacles remain.
Lebanon and Israel have reached a "historic" deal to resolve a decades-long dispute over their shared maritime border.
The agreement comes after months of talks mediated by the United States. If approved by the governments of both countries, it would give Israel complete control over the Karish gas field that sits around 80 kilometres west of the Israeli city of Haifa.
Its neighbour, the Qana field, would then be shared between Lebanon and Israel.
However, its exploration would restricted to Lebanon, while Israel could receive future revenues.
Officials are unsure of how much gas is in the Qana field. But the Karish field, and its Israeli-controlled neighbor Tanin field, holds as much as 2.4 trillion cubic feet of natural gas.
Lebanon has been working with the French energy giant Total on preparations for exploring the Qana field. But production is likely years away.
The two countries have technically been at war since 1948. And they have no relations with each other. They both reportedly made their part of the deal with Washington, not the other country.
US President Joe Biden on Tuesday described the deal as a “historic breakthrough".
"The Karish field will operate and produce natural gas,” said Yair Lapid, the Prime Minister of Israel.
“Money will flow into the state's treasury, and our energy independence will be secured. This deal strengthens Israel's security and economy.
“We do not oppose the development of an additional Lebanese gas field, from which we will, of course, receive the share we deserve."
According to AP, part of the deal included American security guarantees, such as an assurance that none of the gas revenues obtained by Lebanon would go to Hezbollah.
Many leading Israeli security figures praised the agreement because it could lower tensions with the group, which has repeatedly threatened to strike Israeli natural gas assets in the Mediterranean.
The deal still needs to be approved by the Israeli parliament. And it may face some hurdles, as the government has lost its majority.
Benjamin Netanyahu, the head of the opposition, has condemned the agreement.
There was no formal announcement of approval from Lebanon, though officials indicated they would approve the agreement.
And some in Lebanon have argued that the deal could help lift the country out of its spiralling economic crisis — a crisis that the World Bank described as the world’s worst since the 1850s.