Tel Aviv could use diplomatic capital gained in its approval of Tiran and Sanafir deal for support on Palestinian issue.
The transfer of the uninhabited islands of Tiran and Sanafir to Saudi Arabia has been the subject of a confusing legal battle, with one court annulling the treaty and another upholding it.
It also generated widespread public criticism and street protests among Egyptians angered over national sovereignty.
“President Abdel Fattah el-Sisi has ratified the maritime demarcation agreement between the Arab Republic of Egypt and the Kingdom of Saudi Arabia,” the cabinet said in a statement on Saturday.
The government says Tiran and Sanafir belong to Saudi Arabia but had been leased to Egypt in the 1950s.
But opponents of the move said that a 1906 treaty signed by Britain and the Ottoman Empire, marking the border between Egypt and Ottoman-held Arabia, had put the islands in Egyptian territory.
The cabinet’s announcement came more than a week after Egypt’s parliament backed plans to hand over the two islands to Saudi Arabia.
The approval of the border treaty by the parliament’s legislative and constitutional committee followed a January ruling by the High Administrative Court that upheld a lower court verdict, declaring the agreement unconstitutional and void.
On Wednesday, Egypt’s top constitutional court ruled to halt all verdicts on the transfer of the uninhabited Tiran and Sanafir Islands until it makes a decision on the constitutionality of the deal.
That ruling came a day after Egypt’s high administrative court said that previous judicial decisions in favour of transferring the two islands were invalid, according to a judicial official and a lawyer.
The territorial pact, announced in April 2016, caused public outrage among many Egyptians who said the islands belong to their country and accused Sisi of having bartered the islands for Saudi largesse.