The Vatican established official ties Tuesday with the PLO, strengthening its claim to a voice in the Middle East peace process and on the future of Jerusalem.
Pope John Paul II was roundly criticized in 1982 for receiving Palestinian leader Yasser Arafat at the Vatican. At the time, Israel branded Arafat a terrorist.
But Israel and the PLO have since signed a peace treaty. The Vatican recognized Israel 10 months ago.
Tuesday's agreement is short of full diplomatic relations. Rather, it calls for a Palestine Liberation Organization office at the Holy See, and a papal envoy at PLO headquarters in Tunisia.
A joint statement, released by the Vatican, said the agreement will enable the Roman Catholic Church to carry out its "spiritual, educational and social service in favor of Palestinian Catholics and of all Palestinians."
The agreement pledges the Vatican and the PLO to cooperate in preserving the "religious and cultural values" of the Holy Land, particularly Jerusalem.
Jerusalem, holy to Christians, Muslims and Jews, is one of the most sensitive issues of the peace process. Israel currently claims the city as its capital; the Palestinians want it as their future capital; the Vatican favors an international protectorate.