The former Liverpool and England midfielder said last month he would not be taking up an offer to join the team. However, he has had a change of heart and becomes the latest big name to join the growing league.
"Where legends are found. We're thrilled to announce Steven Gerrard is our new head coach," Al-Ettifaq wrote on Twitter.
Gerrard guided Rangers to their first Scottish Premiership title in 10 years in 2021 before leaving for Aston Villa, where he was sacked last October.
Gerrard's move is the latest in a number that have followed since Al-Nassr signed Cristiano Ronaldo last December. Former Real Madrid striker Karim Benzema joined Al-Ittihad in June.
Al-Ettifaq finished seventh in the top-tier Saudi Pro League last season.
Last week, Al-Hilal reappointed Portuguese Jorge Jesus as their coach on a one-year deal.