Turkey is still eager to join the EU, Davutoglu said, but added that the bloc could not and should not restrict the Muslim country’s relations with its neighbors.

The four countries signed the deal at the Turkish-Arab Economic Forum, where officials from Arab nations burst into applause as Turkey’s prime minister walked to the podium. Turkey’s popularity in the Middle East has risen amid disputes over Israel’s Gaza blockade and United Nations sanctions against Iran.

Meanwhile, the European Union said Thursday that it planned soon to grant duty-free access for Palestinian products.

EU Trade Commissioner Karel de Gucht said such a deal would “improve the access of Palestinian exports to the EU (and) help revamp the private sector in the Palestinian Authority.”

De Gucht’s comments were released Thursday after he met with Palestinian Economy Minister Hasan Abu-Libdeh, who said the duty-free access would help the state-building process we are undergoing with the assistance and guidance of close friends such as the EU.

No EU capitals have opposed such a move, likely to take effect within months. The issue carries mostly political significance. EU trade with the Palestinian Authority was only 71 million euros ($85 million) in 2008.

Last month, the EU announced that it would rethink the future size of its 300 million euro aid budget for Palestinians if no progress is made towards peace soon.