After a two-day summit in the holy city of Makka, they also agreed on a 10-year plan to increase trade between Muslims and to curb religious extremism, which they said has driven the Islamic world into crisis.
Ekmelettin Ihsanoglu, secretary-general of the 57-member Organisation of the Islamic Conference (OIC), said on Thursday: "Our plan is about moderation and modernisation."
"Moderation to fight the causes of extremism and modernisation to pull the Muslim world out of under-development."
OIC members range from Gulf Arab states, flush with cash from high oil prices, to poor African and Asian nations such as Niger and Bangladesh. They include the conflict zones of Afghanistan and Iraq, and countries where Islamist hardliners have waged campaigns of violence.
"Moderation to fight the causes of extremism and modernisation to pull the Muslim world out of under-development"
secretary-general of the Organisation of the Islamic Conference
Leaders agreed to set up a fund for disaster relief and development and called for intra-Muslim trade to be raised to 20% from 13% within 10 years. But they failed to say how they intended to achieve their goal.
"The Islamic Development Bank will start studies on the fund," Ihsanoglu said. "As to other programmes of the plan, they will require a longer time to be implemented."
A senior delegate at the talks said the leaders could not agree how to finance the fund, given the huge disparity of wealth among OIC members.
"We don't expect poor Muslim countries to offer a percentage of their budget of their GDP," he said. "But one symbolic dollar contribution, or one Muslim dinar, a year will be enough providing that the commitment is there."
Abdullah Ahmad Badawi, the Malaysian prime minister, said he hoped that the fund would be large enough "to support nations that don't have anything".
He cast doubt on a summit declaration that one dollar for every Muslim would be collected to preserve Islamic identity in Jerusalem, which the OIC said must be the capital of a future Palestinian state.
"It's a good idea ... but there are a lot of Muslims in the world who earn less than a dollar a day," he said.
King Abdullah of Saudi Arabia, who hosted the summit, said on Wednesday that extremists had hijacked Islam and left Muslims weak and divided.
Officials said during the summit that they wanted to breathe new life into the OIC, which has been ineffectual since it was set up 36 years ago with the aim of recovering East Jerusalem from Israel after the 1967 Middle East War.