The pilots' union Cockpit said in a statement that the agreement would safeguard jobs, and had looked after “the interests of the pilots for avoiding outsourcing jobs abroad.” The wage freeze will last until March 2011.
Union members will vote on the arrangement on July 20.
Arbiter and former Hamburg mayor Klaus von Dohnanyi had been working with the two sides since April to find a solution in the long-running dispute.
The conflict between Lufthansa and its 4,500 pilots has been bitter, with pilots seeking better working conditions and job protection in the face of a threat from lower-cost subsidiaries.
A one-day strike in February cost Lufthansa €48 million, but Cockpit agreed to call off a second strike in April and return to the negotiating table.