Halutz, who holds the rank of major-general, will succeed Moshe Yaalon, the present chief of staff, whose term of office expires in July.
According to the Israeli state-run radio, the cabinet voted unanimously on Sunday in favour of Halutz's appoint-ment.
Israeli Prime Minister Ariel Sharon and Defence Minister Shaul Mofaz last month decided against extending Yaalon's term for another year.
The decision reportedly set off grumblings within the Israeli army and right-wing circles.
Halutz, the former commander of the Israeli Air Force, was chosen despite his refusal to express remorse over the killing of Palestinian children in the aerial bombings he ordered in the course of al-Aqsa Intifada.
In 2002, an Israeli F-16 fighter-bomber, at Halutz's instructions, dropped a one-tonne bomb on a Gaza apartment building, killing Salah Shahada, a Hamas resistance leader, and 15 civilians, including 11 children.
Halutz also instructed Israeli helicopter gunships and pilotless aicraft to target Palestinian activists along with their families and children in their own homes, or while travelling on crowded streets - a directive thought to be responsible for the deaths of innocent civilians.
Many Palestinian civilians died as
a result of Halutz's approach
The appointment of Halutz as IDF chief of staff has been criticised by some prominent liberal Israeli politicians.
Ron Cohen, a co-founder of the centre-left Meretz Party, said in a 22 February TV interview that Halutz was not the right person for the job.
Some Israeli commentators have suggested that the elevation of Halutz is an indication of the possibility of Israel launching an attack Iran's nuclear facilities.
On Saturday, the Times of London reported that Israel had prepared a plan to attack Iranian nuclear facilities on receiving the green light from the United States.
However, according to Amos Harel, a respected Israeli commentator, the main challenge facing Halutz in the immediate future will be the implementation of the Israeli plan to withdraw the Israeli occupation army from the Gaza Strip and to dismantle Jewish colonies there.
Earlier this week, the Israeli television Channel-2 reported that the army had already rented 180 bulldozers to carry out the demolition of the settlements.
It has been reported that Israel is refusing to sell abandoned Jewish colony houses in Gaza to a third party, fearful of the potentially negative psychological impact of scenes of Palestinians celebrating inside them on Israeli public, especially the settler population.