Qatar's crown prince, Sheikh Tamim bin Hamad al-Thani and his Bahraini counterpart, Sheikh Salman bin Hamad al-Khalifa, signed an agreement to create a company that would build a bridge linking the archipelago of Bahrain to the Qatari peninsula to the east, said the official Bahraini news agency BNA.
The price of the project was not disclosed, but a cost of about $2 billion was given when the bridge project was announced in 2000 as the two countries were resolving a territorial dispute.
The crown princes signed a separate agreement to expand air links and assist each other in diplomatic and consular representation around the world, as well as a memorandum of understanding to bolster economic and business ties, it said.
Both sheikhs hailed the agreements as "historic".
There was no mention of a previously announced proposal for Qatar, which has the world's third largest gas reserves, to supply resource-poor Bahrain with gas via a new pipeline.
The signing came after a meeting by the joint commission formed by the two countries after a decades-old territorial dispute between Bahrain and Qatar over Hawar island that led to a war in 1986 and was resolved by the International Court of Justice in March 2001.
Relations between Manama and Doha remained chilly for almost three years after the conflict due to Qatar's frequent arrests of Bahraini fishermen accused of straying into its territorial waters.
Both tiny countries are allies of the United States in the region,with Bahrain home to the US navy's Fifth Fleet and Qatar to two US military bases.