diff --git a/otel/digma-otel-agent-extension.jar b/observability/digma-otel-agent-extension.jar
similarity index 100%
rename from otel/digma-otel-agent-extension.jar
rename to observability/digma-otel-agent-extension.jar
diff --git a/otel/opentelemetry-javaagent.jar b/observability/opentelemetry-javaagent.jar
similarity index 100%
rename from otel/opentelemetry-javaagent.jar
rename to observability/opentelemetry-javaagent.jar
diff --git a/observability/tracing/.env b/observability/tracing/.env
new file mode 100644
index 000000000..8b1378917
--- /dev/null
+++ b/observability/tracing/.env
@@ -0,0 +1 @@
+
diff --git a/observability/tracing/collector-config.yaml b/observability/tracing/collector-config.yaml
new file mode 100644
index 000000000..413b1e0ab
--- /dev/null
+++ b/observability/tracing/collector-config.yaml
@@ -0,0 +1,31 @@
+receivers:
+  otlp:
+    protocols:
+      grpc:
+      http:
+
+exporters:
+  jaeger:
+    endpoint: "jaeger:14250"
+    tls:
+      insecure: true
+  otlp/digma:
+    endpoint: ${OTLP_EXPORTER_DIGMA_COLLECTOR_API}
+    tls:
+      insecure: true
+  prometheus:
+    endpoint: "0.0.0.0:8889"
+    
+processors:
+  batch:
+
+service:
+  pipelines:
+    traces:
+      receivers: [otlp]
+      exporters: [otlp/digma, jaeger]
+      processors: [batch]
+    metrics:
+      receivers: [otlp]
+      exporters: [prometheus]
+      processors: [batch]
\ No newline at end of file
diff --git a/observability/tracing/docker-compose.trace.yml b/observability/tracing/docker-compose.trace.yml
new file mode 100644
index 000000000..f760e68a9
--- /dev/null
+++ b/observability/tracing/docker-compose.trace.yml
@@ -0,0 +1,55 @@
+version: "3.6"
+services:
+  jaeger:
+    image: jaegertracing/all-in-one:latest
+    container_name: jaeger
+    volumes:
+      - badger_data:/badger
+    ports:
+      - "16686:16686"
+      - "14250"
+      - "0.0.0.0:14268:14268"
+    environment:
+      - SPAN_STORAGE_TYPE=badger
+      - BADGER_EPHEMERAL=false
+      - BADGER_SPAN_STORE_TTL=2000h
+      - BADGER_DIRECTORY_VALUE=/badger/data
+      - BADGER_DIRECTORY_KEY=/badger/key
+  
+  grafana:
+    container_name: grafana
+    image: grafana/grafana-oss:latest
+    ports:
+      - 3000:3000
+    
+  prometheus:
+    container_name: prometheus
+    image: prom/prometheus:latest
+    volumes:
+      - ./prometheus.yaml:/etc/prometheus/prometheus.yml
+    ports:
+      - "9090:9090"
+    extra_hosts:
+      - "host.docker.internal:host-gateway"
+
+  collector:
+    image: otel/opentelemetry-collector-contrib
+    command: ["--config=/otel-local-config.yaml"]
+    volumes:
+      - ./collector-config.yaml:/otel-local-config.yaml
+    ports:
+      - "0.0.0.0:4317:4317" # OTLP receiver
+      - "0.0.0.0:8889:8889" # METRICS
+    extra_hosts:
+      - "host.docker.internal:host-gateway"
+    depends_on:
+      - jaeger
+    environment:
+      - OTLP_EXPORTER_DIGMA_COLLECTOR_API=host.docker.internal:5050
+
+networks:
+  default:
+    name: tracing-network
+
+volumes:
+  badger_data:
\ No newline at end of file
diff --git a/observability/tracing/prometheus.yaml b/observability/tracing/prometheus.yaml
new file mode 100644
index 000000000..badfc7cd2
--- /dev/null
+++ b/observability/tracing/prometheus.yaml
@@ -0,0 +1,10 @@
+global:
+  scrape_interval: 15s # Default is every 1 minute.
+
+scrape_configs:
+  - job_name: 'collector'
+    metrics_path: '/actuator/prometheus'
+    # metrics_path defaults to '/metrics'
+    # scheme defaults to 'http'.
+    static_configs:
+      - targets: ['host.docker.internal:8082']
\ No newline at end of file