The as yet unsigned treaty was finalized on Wednesday, and states that the Holy See has switched its diplomatic relations from the Palestine Liberation Organization to the state of Palestine.
The agreement "aims to enhance the life and activities of the Catholic Church and its recognition at the judicial level," the Vatican's foreign minister, Monsignor Antoine Camilleri, said, referring to the church's activities in areas controlled by the Palestinian Authority.
The world's smallest country has been unofficially referring to the "state of Palestine" for at least a year, with Pope Francis addressing Palestinian leader Mahmoud Abbas as "president of the state of Palestine" during a visit in May 2014.
Francis also made sure to fly from Amman to the West Bank city of Bethlehem, before continuing to Tel Aviv in Israel, to ensure his Holy Land pilgrimage was a "three-state" visit.
The Vatican's foreign minister said the change was in line with the Holy See's position.
Spokesman Reverend Federico Lombardi confirmed it was "a recognition that the state exists."
He said Abbas would be granted an audience with the pope when he visits the nation on Saturday.
Another step forward
The campaign to recognize Palestinians in the Gaza Strip and the West Bank as an official state has been stepped up since peace talks with Israel stalled last year.
In December 2014, Palestinian President Mahmoud Abbas signed papers to join the International Criminal Court, which could give them the power to bring Israel to court over alleged war crimes that occurred during the most recent conflict in August.
It is already a non-member observer state of the United Nations.
Meanwhile, Christians are preparing for the canonization of two 19th century nuns, Mariam Bawardy and Marie Alphonsine Ghattas, who will be the people to be named saint from Ottoman-ruled Palestine.
The Palestinian President Mahmoud Abbas is scheduled to attend the ceremony at the Vatican on May 17.
an/kms (AP, dpa)