Israel will build a 100 billion shekel ($27 billion) rail expansion that will connect its outlying areas to metropolitan Tel Aviv and, in the future, could provide overland links to Saudi Arabia, Prime Minister Benjamin Netanyahu said on Sunday.

The announcement followed a trip by top U.S. officials to Saudi Arabia last week to advance a possible forging of formal relations between the Muslim powerhouse and Israel.

Opening the weekly Israeli cabinet meeting, Netanyahu appeared to sidestep the constitutional crisis that has roiled the country for seven months, denting its economy and shaking Western allies' confidence in its democratic health.

Instead, he promoted infrastructure initiatives including the "One Israel Project", which he described as designed to reduce travel time by train to the country's business and government centres to two hours or less.

"I would like to add that in the future we will also be able to transport cargo by rail from Eilat to our Mediterranean, and will also be able to link Israel by train to Saudi Arabia and the Arabian peninsula," he said in televised remarks.

"On this, too, we are working."