Amir Peretz, the leader of Israel's Labour Party, has appointed the first Arab Muslim to the Israeli cabinet.
Raleb Majadele is to be the new science and technology minister.
Mr Peretz said the 'historic' appointment would improve relationships among different groups in Israel.
However, Mr Majadele's appointment has been criticised as 'a lethal blow to Zionism' by Esterina Tartman, the chair of Yisrael Beitenu's parliamentary bloc.
Ms Tartman said Israel is 'a Jewish state and should be run according to Jewish principles'.
However members of Israeli Prime Minister Ehud Olmert's Kadima party have expressed regret that 'there are still people who, instead of speaking of cooperation, continue to speak in a racist tone'.
Arab Israeli citizens make up about 20% of Israel's estimated population of seven million.