The 43-year-old has been out of the game since being sacked by Aston Villa in October.
Gerrard had previously said he had turned down an offer to head to the Gulf state, but has now been lured by the riches on offer.
"Where legends are found. We're thrilled to announce Steven Gerrard is our new head coach," the club said in a post on Twitter.
Al-Ettifaq finished seventh out of 16 clubs in the Saudi Pro League last season.
Backed by the nation's sovereign wealth fund, the Saudi Pro League is luring big names from the major European leagues with the promise of huge salaries.
Cristiano Ronaldo's move to Al Nassr in January started the trend.
His former Real Madrid teammate Karim Benzema and French World Cup winner N'Golo Kante of Chelsea have recently joined Al-Ittihad.
Former Tottenham manager Nuno Espirito Santo and ex-Benfica Jorge Jesus are among the coaches to head to Saudi.
Since retiring from a glittering playing career, Gerrard did have success during his spell in charge of Scottish giants Rangers, where he won the club's only league title in the past 12 years in 2020/21.
For an optimal experience, please
