Egypt and Israel on Tuesday signed an agreement to establish the first qualified industrial zones (QIZs) in Egypt - giving duty-free access to the US market for goods produced with both Egyptian and Israeli inputs.

"This is the most significant economic agreement between Egypt and Israel in 20 years," US trade representative Robert Zoellick announced at the signing ceremony in Cairo.

The agreement creates three new industrial zones in Egypt: one in Cairo, one in Alexandria and one in Port Said.

Zoellick said these particular zones would support the Egyptian textile industry as it faces the elimination of the system of quotas for textiles and apparel, but he added that the QIZs could be used for other industries in the future.

Companies there can export duty- and quota-free to the United States, as long as the products have nearly 12 per cent Israeli content, which can include packaging.

In a joint statement with the Egyptian Minister of Foreign Trade and Industry Rashid Mohamed Rashid, the two leaders said they hoped the QIZs would be a first step toward a more comprehensive free trade agreement between Egypt and the United States.

Egypt exported some $550 million worth of cloth and clothing to the United States in 2003

The United States first established the QIZ program with Jordan and Israel in 1996 to stimulate economic cooperation, cross-border investment, job creation and economic development in the region.

Since the first zones opened in Jordan in 1999, they have attracted nearly $100 million in investment and created 35,000 jobs.