Under the agreement, Australia will supply more than 3,000 metric tons (3,307 short tons) of feed and 1 million Australian dollars (US$700,000) to meet expenses associated with the unloading, transport, holding and slaughter of the sheep in Eritrea, an East African nation bordering the Red Sea between Djibouti and the Sudan.
Word that the sheep would finally be allowed ashore came Friday in an announcement from both Eritrea's Agriculture Minister Arefaine Berhe and his Australian counterpart Warren Truss
The agreement ends about 11 weeks at sea for the sheep, which were originally sent in early August from Western Australia to Saudi Arabia but were turned away by Saudi officials who said too many of them had scabby mouth disease.
The sheep's plight has sparked a storm of protest from animal rights activists around the world and threatened to jeopardize Australia's multimillion dollar live animal export.
More than 5,000 sheep died during their marathon voyage.
Berhe said Eritrea welcomed the opportunity to accept the sheep, with unloading starting at the Port of Massawa on Friday.
Truss said it was satisfying to have found a destination for the sheep. The entire cargo had set off back to Australia after being offered free to about 30 countries, all of which rejected them.
Australia exports 195 million Australian dollars (US$136.5 million) worth of live animals each year, mostly to countries that require livestock slaughtered according to Islamic standards.
Under the standards, meat is acceptable or "halal" if it is killed by a Muslim who slits its jugular vein and drains all blood from the carcass.