The largest ever overseas sale of the French warplane was sealed as French President Emmanuel Macron began a two-day trip to the Gulf, during which he will also visit Qatar and Saudi Arabia.
"These contracts are important for the economy and create jobs in France. What is good for French men and women, I defend ardently," Macron told reporters, dismissing concerns by activists that French arms sales in the Gulf were fuelling conflicts in the region.
The French presidency said the deal, signed at a ceremony between Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed al-Nahya and Macron on the sidelines of the Dubai Expo 2020, is worth $19 billion.
The first French warplanes will be delivered from 2027, officials, and would create some 7,000 jobs.
Macron's visit comes at a time when Gulf Arab states have voiced uncertainty about the United States' focus on the region even as they seek more weapons from their key security ally.
The French leader has forged a good relationship with MBZ with investments flowing between the two countries. Paris has a permanent military base in the Emirati capital.
Shares in Dassault Aviation SA , the Rafale's maker, rose more than 9%.
It is the biggest bulk purchase of the Dassault-made Rafale, other than by the French army, and comes after deals in Greece, Egypt and Croatia this year.
Abu Dhabi also ordered 12 Caracal helicopters. It is the French code name for the H225M, the multirole military version of the Super Puma.
The on-off negotiations for the Rafale fighter jets took more than a decade with Abu Dhabi publicly rebuffing France's offer to supply 60 Rafale jets in 2011 as "uncompetitive and unworkable". Abu Dhabi already has French-built Mirage 2000 warplanes.
"This French commitment in the region, this active cooperation in the fight against terrorism, the clear positions we have taken mean that we have increased our proximity to the UAE," Macron said.
"And at a time when they undoubtedly asked themselves more questions about other historical partners ... I think that this strengthens France's position," he said referring to the United States.
Defence sources said the Rafale would replace the Mirage 2000 fleet but is unlikely to displace the American-built F-35 as the UAE continues to hedge its security with two major suppliers, France and the United States.
The deal could nonetheless be seen as a signal of impatience as the US Congress hesitates on approving an F-35 deal amid concerns about the UAE's relationship with China, including the prevalence of Huawei 5G technology in the country.
"That says a lot about the extraordinary aura that Abu Dhabi has acquired over Paris' ideological and strategic thinking — It is the first time that a close U.S. partner in the Arab world will rely more on French technology than American technology," said Jalel Harchaoui, a senior fellow at the Global Initiative Against Transnational Organized Crime.
Paris is one of the UAE's main arms' suppliers, but it has faced increasing pressure to review its sales because of the conflict between a Saudi-led coalition and the Iran-aligned Houthi rebels in Yemen, which has become one of the world's worst humanitarian crises.
"France is going ahead with these sales despite the UAE playing a leading role in the atrocity-marred military operations led by the Saudi-led coalition in Yemen," Human Rights Watch said in a statement. "The French president should denounce the human rights violations in these three counties.