Following 10 months of frequently tense negotiations, the State Department said on Tuesday the two allies had reached a deal with a signing ceremony planned for Wednesday in Washington DC.
Israel has long been a major recipient of US aid, mostly in the form of military assistance, against a backdrop of an ebbing and flowing conflict with the Palestinians and Israel's neighbours.
The US and Israel have not disclosed the exact sum, but officials familiar with the deal told news agencies it totalled $3.8bn a year - up from the $3.1bn the US gave Israel annually under the previous 10-year deal that ends in 2018.
The agreement was described as the "single largest pledge of bilateral military assistance in US history", but it also reportedly involves major concessions by the Israeli government, which will no longer be able to seek additional annual funds from the US Congress over and above the new package.
Al Jazeera's Patty Culhane, reporting from Washington DC, said the annual $3.8bn figure did not mark a big change "compared to what Israel was getting in 2015 or 2016".
"It sounds like a bit of a difference, but then if you look at the money that the US Congress routinely gives Israel on top of that $3.1bn, it's really not that much more," Culhane said.
"In 2015, the US Congress gave Israel $620m for missile defence, so basically Israel is going to get the same amount as it's been getting."
The reported figure also is significantly lower compared to the $4.5bn - $5bn sums that Israeli Prime Minister Benjamin Netanyahu said he was seeking when entering the negotiations 10 months ago, according to Culhane.
Israel's government had no immediate comment on the deal.
Under the agreement, Israel's ability to spend part of the funds on Israeli military products will be gradually phased out, eventually requiring all of the funds to be spent on American military industries, according to the Associated Press news agency.
Israel's preference for spending some of the US funds internally had been a major sticking point in the deal.
The new US-Israel agreement also includes, for the first time, funding for missile defence programmes. Under the previous arrangement, Congress approved funds for missile defence separately and on an annual basis.
The deal comes despite mounting frustration within US President Barack Obama's administration at Israel's policy of building settler homes on occupied Palestinian territory.
Washington has warned that Netanyahu's policies are putting at risk hopes of an eventual peace deal.
