Called the Pact of Amsterdam, the strategy aims to improve cooperation and strengthen the "urban dimension" in EU decision making.
It was unveiled by European ministers in charge of urban development on Monday in Amsterdam.
"The aim," said a source for the Dutch EU Council presidency, "is to improve the lives of the nearly two-thirds of Europeans who live in cities."
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The initial work will focus on housing, air quality, integration of migrants and refugees and urban poverty.
Ministers said that with more than 70 per cent of all Europeans living in cities, towns or their suburbs, cities are the "engine" of the European economy, with 85 per cent of GDP generated there.
Despite this, local and regional leaders are concerned that European policy does not reflect the real needs of the businesses and citizens on the spot.
The aim of the urban agenda is to facilitate cooperation at all levels - EU, national and local - and the use of EU funds for projects in areas such as housing, air quality, energy savings, training and employment policies or integration of migrants.
Reaction to the initiative was swift, with Michael Schneider, who heads the EPP group in the Committee of the Regions, saying he hopes to see "visible results" soon.
Schneider said: "For us it was essential that this pact paves the way for a new working method, focused on stronger partnership on urban matters across all levels of government."
But, he was quick to add, this should not involve new legislation or competences for the EU.
"We have been talking about this for more than 20 years and I am pleased that today we have an agreement. Now is the time for the real work to start."
He called for close consultation with local and regional authorities and, referring to the agenda's financing, said, "We would like to see the flexibility to respond quickly to specific and unforeseen challenges, such as the refugee crisis and threats from terrorism, as well as more exchanges of best practice."
Further comment came from CoR President Markku Markkula, who said, "The pact is just the beginning, not the end. Its success depends on the long-term commitment of all decision makers: EU institutions, member states, cities and regions and civil society.
"We're launching a long-term process and its implementation lies in one word: partnership".
His CoR colleague, Raffaele Cattaneo, who heads the institution's commission for territorial cohesion policy, warned that a stronger focus on urban issues should not lead to less support for rural areas.
Cattaneo emphasised the importance of links between urban and rural areas and their role in bringing growth and job creation.
He said: "EU policies must not encourage a competitive relationship between these two dimensions in so far as they are integrated geographically, administratively and in terms of functional and thematic policies".
More reaction to the announcement came from Johanna Rolland, mayor of Nantes in France and President of EUROCITIES, the Brussels-based body representing European cities.
She said: "Our cities have shown that the values behind the European project are still very much alive. Cities have rallied to deal with the refugee crisis where national responses have been slow. We are committed every day to greater solidarity, cohesion and citizen participation. We are working to build a stronger Europe, one that is closer to its people."
Rolland went on, "Our aim is to develop and implement integrated and coherent European public policies and funding to address our shared challenges.
"This is not just about using new tools but, most of all, about results. This is our opportunity to test a new way of working in partnership with cities, member states and the EU, and make the most of the tools proposed to deliver better regulation, better funding and better knowledge sharing."