Formal diplomatic relations between the Holy See and Israel were established on 30 December 1993 after the adoption of a "Fundamental Agreement" between the two states.

On 19/1/1994, a Vatican nunciature in the State of Israel and Israeli embassy in Rome were opened at the same time.

Andrea Cordero Lanza di Montezemolo was appointed as the first Apostolic Nuncio to Israel, Israel appointed Shmuel Hadas as its first Ambassador to the Vatican, in September of that year.

On 30 December 1993, the Holy See and Israel signed two agreements—the Fundamental Agreement Between the Holy See and the State of Israel and an Additional Protocol. The Fundamental Agreement is seen as a concordat that deals with tax exemptions and property rights of the Catholic Church and related entities within Israeli territory that entered into force on 10 March 1994, but has not been ratified by the Knesset. The Additional Protocol details provisions related to the establishment of normal diplomatic ties between the Holy See and Israel, pursuant to which the Holy See established on 15 June 1994 full diplomatic relations with Israel.

The Holy See set up an Apostolic Nunciature to Israel in Tel Aviv, and appointed an Apostolic Nuncio. Several outstanding issues had still to be resolved, and have still to be resolved.

Diplomatic relations are tense due to the non-resolution of the accords relating to property rights and tax exemptions for the Church in Israel, the political activism of Israel- and Palestinian Authority-based clergy, and the interplay between Israel-Vatican relations – on one hand – and the Jewish-Catholic inter-religious dialogue – on the other.

The Vatican is concerned about the protection of the Latin Church Catholic churches, properties and assets belonging to it, and sacred land.

Israel, for its part, has taken offence at several matters regarded by the Vatican as internal issues but which are seen by Israel and broader Jewish communities as a result of their religion and history.

These issues include the beatification of Pope Pius XII despite his failure to speak out against the Holocaust while it was still happening, the pardoning of a right-wing Catholic Holocaust-denying priest, and the subordination of inter-religious dialogue to evangelical aims.

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