The decision takes place several days after the very first commercial flight from Israel arrived in the UAE via Saudi airspace.
This became possible after Israel and the UAE reached a US-brokered deal last month to establish full diplomatic ties and exchange embassies in return for Israel putting on hold the extension of additional sovereignty over West Bank areas.
The agreement made the UAE the third Arab country to have a full peace deal with Israel after Egypt in 1979 and Jordan in 1994.
UAE President Khalifa bin Zayed Al Nahyan issued a decree on abolishing the economic boycott of Israel and related penalties.
The Palestinian Authority condemned the deal as an act of betrayal.