Donor nations offer billions to boost Palestinian economy

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International support for a future Palestinian state received an important financial boost when donor countries came forward to pledge $7.4bn (3.7bn) to shore up the Palestinian economy, exceeding the announced target of $5.6bn.

Despite doubts about the Israeli checkpoints strangling the Palestinian economy in the West Bank, and the continued estrangement of Hamas-controlled Gaza from the Fatah-ruled West Bank, officials from more than 60 countries and international organisations pledged their support over the next three years. The conference in Paris was warned by the Ramallah-based Fatah President, Mahmoud Abbas, that "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".

The conference was held to provide economic underpinning for the decisions reached at the Annapolis peace summit last month, at which the US and its partners agreed to push for the creation of a viable Palestinian state before the end of next year. However Hamas was not invited to Annapolis or Paris and branded yesterday's conference as a "declaration of war".

The French President Nicolas Sarkozy stressed that a main priority of the event would be to provide immediate support "to the entire population of the Palestinian territories", including Gaza, whose "prolonged isolation carries huge political, economic and security risks". He also urged Israel to lift the travel restrictions against the Palestinians, imposed for security reasons, saying that such a move was in Israel's own "best interests".

The Israeli Foreign Minister Tzipi Livni said: "We have no desire to control Palestinian life. We do not want the image of Israel in the Palestinian mind to be a soldier at a checkpoint, but we know that making every effort to improve the quality of life also means making every effort to end the threat to life caused by terror and violence. Each day we must examine how best to advance peace and security and at the end it comes down to the details, checkpoint by checkpoint, step by step for a better future."

Speaking in Jerusalem, the Prime Minister Ehud Olmert told members of his Kadima Party: "We'll do everything to help the development and strengthening of the Palestinian Authority infrastructure, but not at the price of giving up any vital security interests."

The EU offered $640m, the UK pledged $500m and France $300m. The United States committed $555m, while Saudi Arabia came through with $770m.

Tony Blair, the international envoy who was a co-chair of the conference, said that the "next few months will be crucial".

He said that progress needed to be made in the political negotiations on the thorny "final status" issues, and the Palestinians needed support for building up capability, but that the situation on the ground should not contradict the movement on the first two points. "We need a real change on the ground," he said.

He argued that the chances of success were better than in the past because of the concrete political framework backed by an economic plan drawn up by the Palestinian Prime Minister Salam Fayyad.

There remained some concern however that without an agreement between Hamas and Fatah to secure Palestinian unity, the billions raised would be poured into a "black hole". Mr Abbas maintained a tough line against Hamas, which expelled his forces from Gaza in June, ruling out dialogue until the Fatah security forces were back in control. "What is the point of institution-building if there is no Palestinian unity?" said a European diplomat. "It's not Northern Ireland, whatever Tony Blair says. Building a Palestinian state without Gaza would be a colossal waste of money." Two people were killed by an Israeli air strike in Gaza last night.

Mr Abbas also challenged Israel to freeze all settlement activity, after it emerged that the Israeli housing ministry had issued a tender for 300 apartments in Jerusalem's Har Homa settlement known as Jabal Abu Ghneim to Arabs. "I expect them to stop all settlement activities, without exceptions," he said.

Ms Livni said Israel would live up to the 2003 US-backed "road map" peace plan that includes a demand for the freezing of 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," she said.