"It is time to gradually normalize relations and rebuild a mutual reinforcing partnership with your country," European Commissioner for International Partnerships Jutta Urpilainen said in signing the deal Tuesday with Ethiopia's Finance Minister Ahmed Shide.
The so-called Multi-annual Indicative Program (MIP), which amounts to 650 million euros ($680 million) for the years 2024-2027, should have been concluded in 2021 but was suspended due to the Tigray conflict.
Urpilainen, a former Finnish finance minister, said the MIP "is the concrete first step towards normalization."
"It renews the EU's commitment to work, together with the EU member states... to contribute to Ethiopia's stability, post-conflict reconstruction and macro-economic recovery."
Ahmed said the signing of the MIP was "very important" for Ethiopia, adding that the EU had for 40 years been a "strategic partner for Ethiopia, supporting Ethiopia's economic development and economic reform."
Signed every seven years, MIPs define priority areas of cooperation between the EU and its partners, including financial allocations.
The 27-member EU bloc is one of the main development partners for Ethiopia, Africa's second most populous nation which is grappling with internal violence, a worsening economic situation and natural disasters such as drought.
About 17% of its 120 million people depend on food aid, which was suspended by the United States and the U.N.'s World Food Program in June citing widespread diversion of supplies.
Urpilainen said Brussels was not however resuming budgetary aid to Ethiopia which was suspended a month after the November 2020 start of the fighting in Tigray.
"When it comes to budget support modalities there are also very strict conditions," she said, adding that an International Monetary Fund (IMF) program was needed.
Ethiopia is currently negotiating with the Washington-based lender seeking support for the country's economic reforms.
"In addition to that we also have some political conditions," Urpilainen said without elaborating.
The Tigray war killed untold numbers of civilians and forced about 2 million from their homes before it ended with a surprise truce in November last year.
The EU supports the implementation of the peace deal "through the national dialogue, as well as also accountability and transitional justice," said Urpilainen.
"Stabilization in Tigray is under way, but the situation remains complex and fragile including in several other regions."
Fighting erupted earlier this year between federal troops and local militias in the Amhara region and violence persists in several other parts of the country, a mosaic of more than 80 ethno-linguistic communities.
The visiting EU commissioner also held separate talks with Ethiopian Prime Minister Abiy Ahmed and African Union Commission head Moussa Faki Mahamat but the press was excluded.