International donors have pledged $7.4 billion (€5.10 billion) in aid at a one-day conference to boost the Palestinian economy and underpin renewed Middle East peace talks.
The Palestinian government had sought €3.85 billion over three years, funds designed to revive the moribund Palestinian economy and strengthen Western-backed President Mahmoud Abbas in a struggle with Hamas Islamists while he negotiates with Israel.
"Without the continuation of this aid and without the liquidity needed for the Palestinian budget, we will have a catastrophe in the Gaza Strip and in the West Bank," Abbas told the conference.
French President Nicolas Sarkozy had urged the 68 visiting states to be generous at the Paris conference, the financial sequel to last month's Annapolis meeting that launched the first Israeli-Palestinian peace talks in seven years.
The European Union executive offered €440 million of grant aid for the Palestinians. The United States pledged some €382.5 million and Sarkozy said France would give €206.78 million.
"This conference is literally the government's last hope to avoid bankruptcy," US Secretary of State Condoleezza Rice said.
A World Food Programme survey on Monday found median household income in Gaza fell 30 per cent over the last six months. The survey said about 70 percent of non-refugee households surveyed earned less than $1.20 per person per day.
Abbas's challenges go well beyond finances. Hamas, which opposes the peace talks, seized control of the Gaza Strip in June and Israel antagonised Palestinians by announcing plans to expand a settlement near Jerusalem by around 300 homes.
"If we want to launch serious talks to end the conflict as we and the world have decided to do, then how can a key party pursue settlement activity and expansion?" he said.
Israeli Foreign Minister Tzipi Livni did not directly address his question but she reiterated Israel's intent to live up to the 2003 US-backed "road map" peace plan that demands it freeze settlement activity.
"Despite the difficulties, we are ready to do so and are committed to meet our road map obligations, including in relation to settlement activity," Livni told the conference.
Several states and the World Bank told Israel it needed to scrap checkpoints that criss-cross the occupied West Bank if it wanted the aid to make a big difference for Palestinians.
Livni struck a conciliatory tone in her speech but stood firm on checkpoints which Israel has refused to lift, citing security concerns. It has also tightened its military and economic cordon around Gaza.
Abbas and Israeli Prime Minister Ehud Olmert agreed at the November 27 Annapolis talks to try to reach a deal on a Palestinian state by the end of 2008. Those talks formally resumed on December 12 but have been complicated by the new settlement announcement.
Many analysts doubt the peace effort will go far because of divisions among the Palestinians and Olmert's weak position with a fragile governing coalition, part of which opposes the compromises necessary for a peace deal.
"The Paris conference was a meeting to declare war on Hamas and other resistance factions," Hamas official Sami Abu Zuhri said.