The agreement represents another diplomatic win for Trump less than two months before the presidential election and an opportunity to shore up support among pro-Israel evangelical Christians.
That arrangement also included Kosovo recognizing Israel, and Serbia agreeing to move its embassy to Jerusalem - as the US had done with its embassy in 2017.
Last week, Saudi Arabia agreed to allow Israeli planes to fly over its territory, paving the way for the operation of the direct flights to the UAE.
"This agreement adds to the historic peace with the United Arab Emirates", Netanyahu said in a Hebrew-language statement.
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The statement said Bahrain accepted Trump's invitation to join Israel and the UAE at the signing ceremony. Oman could be another country to normalize ties with Israel, but Oman's leadership has suggested that normalization would not be possible unless a sovereign Palestinian state was established.
But it is a setback for Palestinian leaders, who have urged Arab nations to withhold recognition until they have secured an independent state.
Prime Minister Netanyahu immediately welcomed the announcement in a video statement, saying it marked a "new era of peace".
As a part of agreement with the UAE, Israel said it would suspend its plans to annex part of the West Bank, where up to 3 million Palestinians live.
According to the Trump administration, both the Manama workshop on the USA president's "peace plan" and Bahrain's subsequent decision to normalize ties with Israel serve to advance the "cause of peace, dignity, and economic opportunity for the Palestinian people". Kushner noted that Bahrain is home to the US Fifth Fleet and the US will continue to develop its military ties with the kingdom. The president said many other countries in the Middle East "want to be in this". Asked if Saudi Arabia, one of the most influential Gulf Arab nations, could be next to make peace, Kushner expressed hope.
Just off the coast of Saudi Arabia, the island of Bahrain is among the world's smallest countries, only about 760 square kilometers (290 square miles).
President Trump tweeted his support of the deal, calling it "another HISTORIC breakthrough" with "our two GREAT friends".