The 1,200-kilometre Etihad Rail project will link the country's small communities, urban and industrial centres.
It will connect with proposed lines in Saudi Arabia at the Ghweifat border and in Oman at Al Ain to link the UAE to the other five GCC countries.
Phase two will extend the railway to Mussaffah, Al Ain, Ghweifat and Dubai by 2016.
Phase three will extend the project to Sharjah, Ras Al Khaimah and Fujairah, and will be complete in 2018.
It will clear road congestion, boost industry and stimulate the economy, particularly in Al Gharbia.
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