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The former Liverpool captain initially rejected an approach from the club but has now accepted an offer after talks restarted last week.
It is the 43-year-old's first job since being sacked by Aston Villa in October after just 11 months in charge.
Before his stint at Villa, Gerrard had a three-year spell in charge of Rangers, who he led to the Scottish Premiership title in 2021.
Al Ettifaq finished seventh in the 16-team Saudi Pro League last season.
The Saudi top flight has now been expanded to 18 teams for the new campaign, and will feature players such as Karim Benzema and N'Golo Kante, alongside Cristiano Ronaldo.
Analysis: Saudi Arabia's transfer strategy explained
Saudi Arabia are signing some of world football's most high-profile players this summer - but why is this happening and does this spending power pose a threat to big European clubs?
In 2023 alone, Cristiano Ronaldo moved to the Middle Eastern nation on a free transfer, with Ballon d'Or winner Karim Benzema turning down another season at Real Madrid to join him in the country.
That is by no means the end of it with Sergio Ramos, Bernardo Silva and Heung-Min Son reportedly presented with similar offers.
Follow the summer transfer window with Sky Sports
Who will be on the move this summer ahead of the transfer window closing at 11pm on September 1 in England and midnight in Scotland?
Keep up to date with all the latest transfer news and rumours in our dedicated Transfer Centre blog on Sky Sports' digital platforms. You can also catch up with the ins, outs and analysis on Sky Sports News.