Costs are estimated to exceed $95m (Euros 70m).
The protocol signed today includes the building of a new Palazzo del Cinema, a convention centre as well as other infrastructure aimed at keeping the Lido in business year round.
Italy's State government will contribute $27m (Euros 20m); the remaining funds will come from the local and regional governments.
Rutelli called the agreement 'a determined effort that gives justice to an institution that is strong, vital, and admired by the entire world.'
He underlined the State has no intention of abandoning the Biennale di Venezia, Italy's most important art showcase. 'The State will continue to finance the Biennale,' he affirmed, 'which is the clear and right thing to do.'
It was not specified at the meetings when work would get under way but previous media reports have projected that 2009 or 2010 as completion date for the new Palazzo.
Festival director Marco Muller acknowledged at last year's festival that the long mooted regeneration of the Palazzo Del Cinema would be crucial if