The Vatican is to formally recognise Palestinian statehood in a treaty that will be signed shortly, officials say.
Israel has expressed its disappointment at the decision which it says will not advance the peace process.
Talks between the Palestinians and the Vatican - which favours a two-state solution to the Israeli-Palestinian conflict - have gone on for 20 years.
President Abbas meets the Pope this weekend when two 19th Century Palestinian nuns will be canonised.
The Vatican is eager that property and civil rights of the Catholic Church in the Palestinian state is protected, correspondents say.
According to the New York Times, it has strong religious interests in the Israeli-occupied Palestinian territories that include Christian holy sites.
The BBC's David Willey in Rome says that Pope Francis is making every effort to strengthen the Christian presence in the Middle East at a time when hundreds of thousands of Arab Christians are fleeing Islamist violence.
The Vatican's announcement comes amid growing momentum to recognise Palestinian statehood. Over the last year the European Parliament as well as the UK, Republic of Ireland, Spain and France have all passed non-binding motions in favour.
Sweden has gone further, officially recognising Palestine as a state.
The moves have been criticised by Israel, which says recognition of statehood in this way discourages Palestinians from resuming talks on a final status agreement.
The agreement on Wednesday will define Catholic Church activities in areas controlled by the Palestinian Authority, the Holy See said on Wednesday.
A joint statement released by the Vatican said that the wording of the treaty had been finalised and would be officially signed by the respective authorities "in the near future".
Similar separate negotiations have also been going on for two decades between the Vatican and Israel, but so far without reaching full agreement.
This weekend President Abbas will have talks with Pope Francis at the Vatican, and on Sunday he will be attend a canonisation ceremony during which two Palestinian nuns who lived in the 19th Century - when Palestine was part of the Ottoman empire - will be declared saints.
They will be the first new saints from the Arab world to be named since the early days of Christianity.