In a statement, Siemens said: "The transaction brings together two innovative players of the railway market with unique customer value and operational potential".
To ease French concerns, the current chief executive of Alstom, Frenchman Henri Poupart-Lafarge, will lead the new business. At the time of negotiations with GE, Siemens had also been interested in a sweeping combination with Alstom, but was rejected by the French company and its owners, which also include conglomerate Bouygues SA.
A combination would create a European transportation business with about $18 billion in annual sales.
The ill-tempered contest between Alstom and Siemens has been a feature of the sector for decades and reached a boiling point in 2011, when the pair engaged in a public spat over the safety of competing high-speed models they were pitching to Channel Tunnel express operator Eurostar International Ltd.
The headquarters of this new entity - which will be equally owned by the two companies - will be established in Paris. The producers of the TGV and ICE high-speed trains wanted to grow by more than 4 percent per year together and achieve combined revenue of more than 20 billion euros (23.45 billion US dollars) as "Siemens Alstom" by 2023.
Earlier this year, news reports had reported exchanges between Bombardier and Siemens about the creation of a joint venture specializing in the construction of trains and signalling equipment rail. They estimated 230 million euros of synergies and said the economies of scale in train production were not significant and that politicians would try to protect jobs in France and Germany.
The deal sidelines Canadian transportation group Bombardier Inc BBDb.TO , which also held talks with Siemens, sources have said. Backed by government financing, CRRC and other Chinese rail suppliers have been making deep inroads into markets around the world formerly dominated by Siemens and Alstom. Jochen Eickholt, head of Siemens Mobility, will assume an "important responsibility" in the merged company, the companies said.