Answer
Wa `alaykum as-Salamu wa Rahmatullahi wa Barakatuh.
In the Name of Allah, Most Gracious, Most Merciful.
All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.
In this fatwa:
1- Reading Al-Fatihah at the time of the engagement is not considered something bad or discouraged in religion.
2- Thus, reading Al-Fatihah in such a case is an act which denotes blessing the engagement.
3- During the time of engagement, the man and the woman are not considered married and hence they are not allowed to be alone with each other. It is forbidden for them to have intimate relations during the time of engagement.
4- It is forbidden for the man and the woman to have intimate relations during the time of engagement.
Responding to the question, Sheikh Ahmad Kutty, a Senior Lecturer and Islamic Scholar at the Islamic Institute of Toronto, Ontario, Canada, states:
There is no fixed ritual of reading Al-Fatihah during an engagement ceremony, for reading Al-Fatihah is not all considered one of the integrals or conditions of engagement proper. We are not allowed to prescribe anything as a set ritual in religion without the sanction of the Law-Giver (i.e., Allah and the Messenger).
Having said this, however, I must add that reading Al-Fatihah on such occasions is not considered bad; rather it should be considered a great deed if done with the intention of invoking the blessing of Allah.
Since Al-Fatihah is the opening surah of the Qur’an, and has been referred to by various names such as “Thanksgiving”, “Prayer”, “Healing”, et cetera, its reading entails great rewards and blessings.
So if we wish to read it to invoke blessings upon the couple at the time of engagement, it is indeed beneficial; no one should object to such a practice. How can anyone object to seeking the blessings of Allah through His revealed Word, while it has been considered as the du`aa’ par excellence?
Thus, reading Al-Fatihah and exchanging rings, gifts, et cetera on the occasion of the engagement are all considered permissible and good practices, and therefore no one should object to such practices.
Now, let us come to the issue you have raised: what is the precise significance of the engagement ceremony? Answering this question, I would hasten to state: Engagement is nothing more than a promise to marry at a future date; it is not at all a license for the parties to be together, to hold hands, or to be alone together.
None of these things are considered permissible, for engagement does not make what was previously haram to be halal. Therefore, for all practical purposes, they are still considered as strangers; the only difference is since they are committed to marry each other, no one else is supposed to approach either one of them for marriage so long as they are engaged or married.
Also, since they have promised each other to marry, they should not break the engagement unless there is a genuine ground to do so. A Muslim is a person of honor, and hence it is unbecoming of him to break an engagement on frivolous grounds.
Allah Almighty knows best.
Excerpted, with slight modifications, from: www.muslims.ca