The interactions between rare-gas atoms are studied using the effective medium theory developed by Jacobsen et al. (1987). This theory is based on solving the interaction of a single atom with homogeneous electron gas. First the necessary electron structure calculations are performed by employing the density functional formalism within the local-density approximation (LDA) for electron-exchange and correlation effects. The binding properties of the rare-gas atoms are then extracted along the lines of the effective medium theory, which previously has been shown to give a good description of simple metals. The results now obtained for rare-gases support these ideas and widen their area of applicability. The cohesive energies and Wigner-Seitz radii obtained for solid Ne, Ar and Kr are in good agreement with experimental values. The present values for the bulk moduli are too large reflecting the inability of the LDA to describe the long-range van der Waals interactions. According to the present model He atoms do not form bound systems. Using a simple nearest-neighbour model the bulk cohesive properties are converted into pair potentials. In the case of Ne, Ar and Kr the pair potentials obtained are in good agreement with previous theoretical and semi-empirical models from the bottom of the attractive well to the highly repulsive region. However, the pair potentials are short-ranged instead of having an 1/R6-tail due to the LDA.