The Finance Ministry, the Education Ministry, and the Secondary School Teachers' Union reached an agreement on Wednesday after two months of negotiations.
As a result of the agreement, the education system will continue its transition toward a five-day school week - one day less than the current six-day school week, which includes Friday.
The parties also agreed to cancel the decree docking teachers' pay on June 8, when war broke out with Iran.
What is more, physics teachers will receive the same 4% bonus for preparing students for the highest-level matriculation examination (Bagrut) that chemistry teachers get.
Also, teachers who teach classes with integrated special education students will receive annual grants based on the number of children with disabilities in their classes.
The ministries and the union also increased the number of annual early retirees from 320 to 350, citing "high demand from teachers wishing to retire early due to burnout."
Parents association rejects Teachers' Union threat to limit inclusion of students with disabilities
In June, as this agreement was being negotiated, the National Parents' Leadership Association called on the Education Ministry to reject the Teachers' Union's ultimatum to limit the integration of children with disabilities into classrooms.
While teachers are threatening strike action over staffing shortages, parents are attacking the demand and describing it as dangerous discrimination.
In response to threats by Teachers' Union chairwoman Yaffa Ben-David, the National Parents' Leadership Association appealed to the Education Ministry's director-general, demanding that the move be rejected.
"The Parents' Leadership Association views the Teachers' Union's letter with great concern," the organization said in a statement. "This is an improper, discriminatory, and dangerous demand that cannot be accepted in an education system committed to the values of equality, inclusion, and acceptance of others. Instead of fighting for additional staffing positions, the Teachers' Union has chosen to direct the spotlight at the children themselves."
Parents' Leadership Association chairman Oren Ozen stated: "The state's role is to provide teachers with the tools needed for successful integration, not to remove children from the classroom. The education system cannot afford to send a message of exclusion."
Avichai Chiim contributed to this report.