Option 1 states that both statements are correct and that Statement-II explains Statement-I. This is incorrect because Israel has not signed the Arab Peace Initiative mediated by Saudi Arabia.

Option 2 ascertains that both statements are correct, but Statement-II doesn`t explain Statement-I. This is false because the second statement is incorrect.

Option 3 claims that Statement-I is correct but Statement-II is incorrect. This is the correct answer. Israel indeed has established diplomacy with some Arab states, like UAE and Bahrain. However, Israel has not signed the Arab Peace Initiative mediated by Saudi Arabia.

Option 4 implies that Statement-I is wrong but Statement-II is correct. This is not true because Israel has established relations with some Arab States proving Statement-I to be correct and the Arab Peace Initiative was not signed by Israel, making Statement-II incorrect.