"I am very excited to come to a club like Chelsea, it is a big club and I think it is a dream for every player. Hopefully we will be successful," the Israeli international told the club website (www.chelseafc.com).
The 30-year-old Israeli captain spent three seasons at Liverpool after moving to England in 2005 when he joined West Ham United from Spanish club Racing Santander.
Chelsea manager Carlo Ancelotti said: "Yossi has a lot of quality in midfield and can play in lots of positions. I like his behaviour on the pitch and he will do a great job for us next season."