Statement-I is correct. Israel has indeed established diplomatic relations with several Arab states. This occurred notably through the Abraham Accords signed in 2020, which led to the normalization of relations between Israel and the United Arab Emirates, Bahrain, Sudan, and Morocco. These agreements marked a significant shift in regional diplomacy.
Statement-II is incorrect. The 'Arab Peace Initiative' was proposed by Saudi Arabia in 2002 and subsequently adopted by the Arab League. It offered Israel full normalization of relations with Arab countries in exchange for a complete withdrawal from territories occupied in 1967 and a just resolution to the Palestinian refugee issue. However, Israel never formally signed or accepted this initiative. Therefore, the premise that it was signed by Israel and the Arab League is factually incorrect.
Given that Statement-I is correct and Statement-II is incorrect, Option 3 is the correct choice.
Options 1 and 2 are incorrect because they both assert that Statement-II is correct. As explained above, Statement-II is factually incorrect as Israel did not sign or accept the Arab Peace Initiative.
Option 4 is incorrect because it claims that Statement-I is incorrect. Statement-I is factually correct due to the establishment of diplomatic relations between Israel and several Arab states under the Abraham Accords.