The ex-West Ham boss, sacked in November last year, signed the deal in New York on Thursday.
A club statement read: "Bilic will train Ittihad throughout the upcoming phase of the sports season."
The 50-year-old will take charge in the Saudi Professional League, with his new team opening their 2018-19 campaign with three losses and one draw in four games.
Al-Ittihad sacked former Argentina international Ramon Diaz – who managed Oxford United in 2004-05 – after their poor start.
It represents the chance for Bilic to get his managerial career back on track after it hit the buffers during his time with the Hammers.
When he was in charge of the Croatian national team he was regarded as one of the brightest young coaches in the game.
But he failed to transfer his dugout skills into club football with disappointing spells at Lokomotiv Moscow and Besiktas.
When West Ham appointed him in 2015, there were fears they had taken a gamble swayed by the affection he was held in with supporters having been a player at the club.
But in his first season in charge he led the club to a seventh placed finish on the back of an impressive campaign which saw the side fighting it out in the top four until the final weeks.
Things turned sour the following campaign, though, as poor signings coupled with problems with star player Dimitri Payet unsettled the club.
And just three months into his third season he was sacked with the club embroiled in a relegation battle they only just escaped from.
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