News of the planned increase came as Mr Clinton went into talks with the Palestinian leader, Yasser Arafat. They were meeting before an international donor conference which aims to raise about $2bn for the Palestinians.

President Clinton announces the $400m aid increase

Announcing the increase, Mr Clinton said: "No peace stands a chance of lasting if it does not deliver real results to ordinary people."

"Palestinians have a right to the same things all people aspire to - to be part of a normal, even happy society where children receive a decent education, where there are jobs to go around and decent health care."

Correspondents say the near-doubling of US aid is based on the idea that combating poverty in Palestinian-controlled areas will promote peace agreements with Israel and curb conflict.

They say the announcement of new US aid is designed to spur increased contributions from participants at the one-day, 40 nation conference on economic assistance for the West Bank and Gaza.

Earlier, Mr Arafat and US Secretary of Commerce William Daley met US business executives to discuss how to boost the Palestinian economy and increase aid from wealthy nations.

Trade mission

Mr Daley, who has just returned from a trade mission to the Middle East, suggested that foreign firms could invest in Palestinian food, telecommunications and information technology industries.

He pledged to encourage private investment in the Palestinian economy, and support efforts to establish free markets in the region.

He said a lasting peace could only be built on economic stability and jobs.

Mr Arafat said he was committed to a policy of privatisation and sought to allay concerns of foreign companies over security in the region.

The two politicians were joined by around 15 business leaders, including representatives from Coca Cola, which has just wrapped up a trade deal on the West Bank.

Mr Arafat has again said that he hopes the coming year will see the beginning of an independent Palestinian state.