And Al Jazira looked to have gone two ahead early in the second half but it was chalked off for offside after a video referral.
With the strike, Ronaldo became the all-time best scorer in the Club World Cup with six goals.
A stunning performance saw the Pride of Abu Dhabi lead the UEFA Champions League champions 1-0 at half-time, in a display that will have won them fans the world over.
No South American side has managed to beat their European counterparts in the Club World Cup since Gremio's compatriots Corinthians stunned Chelsea with victory in 2012, although an upset is not entirely out of the question in Abu Dhabi.
And a thrilling game of twists and turns did not disappoint as local favourites Al Jazira, seeking to secure a historic place in the FIFA Club World Cup UAE 2017 final, came close to causing an extraordinary upset against the footballing giants of Real Madrid, ultimately falling just short in a 2-1 defeat.
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Madrid were back on level terms thanks to star forward Cristiano Ronaldo who struck in the 53rd minute.
In the first semi-final played on Tuesday, Gremio edged Mexico's Pachuca 1-0 following a 95th minute goal by Everton. "I'm happy with how everyone played". Substitutes: Lucas Vazquez (for Isco, 68) 6, Marco Asensio (for Kovacic, 68) 6, Gareth Bale (for Benzema, 81) 7.
Real were given an almighty scare in last year's final, falling behind Japanese side Kashima Antlers before eventually winning 4-2 in extra-time with the help of a Ronaldo hat-trick and Zidane said he expected another hard final.
"It is not going to be easy for us".