Facebook will work with the Israeli government to stop the incitement of violence in the area.
Israel has argued that a wave of violence with the Palestinians over the past year has been fuelled by incitement, much of it spread on social media sites.
It has repeatedly said that Facebook should do more to monitor and control the content, raising a host of legal and ethical issues over whether the company is responsible for material posted by its users.
Both Public Security Minister Gilad Erdan and Justice Minister Ayelet Shaked, two key figures in Israel's battle against the alleged online provocations, participated in Monday's meeting.
Erdan's office said they agreed with Facebook representatives to create teams that would figure out how best to monitor and remove inflammatory content, but did not elaborate further.
Erdan and Shaked have proposed legislation that seeks to force social networks to remove content that Israel considers to be incitement.
An opposition lawmaker has also proposed a bill seeking to force social networks to self-monitor or face a fine. It was not clear whether Monday's agreement would lead the lawmakers to shelve their bills.
In a statement, Facebook said "online extremism can only be tackled with a strong partnership between policymakers, civil society, academia and companies, and this is true in Israel and around the world.''
The social media company also said its community standards "make it clear there is no place for terrorists or content that promotes terrorism on Facebook.''
Israeli security authorities currently monitor for incitement, and then complain to Facebook. The company determines whether the material in question violates its community standards, removing some items but allowing others to stay.
Shaked said Monday that over the past four months Israel submitted 158 requests to Facebook to remove inciting content and another 13 requests to YouTube. She said Facebook granted some 95 per cent of the requests and YouTube granted 80 per cent.
The Palestinians dismiss the Israeli allegations that the violence is caused by incitement. They say it is the result of nearly 50 years of Israeli military occupation and a lack of hope for gaining independence.
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