The United States recognises that unless the Palestinians can establish a sound economic foundation for their territory, the peace process has a limited future.

President Clinton's announcement that the United States would offer $400m in direct assistance to the Palestinians, $25m more than in 1992, is an attempt to stabilise those foundations.

The $400m will be in addition to the $100m the United States is giving the Palestinian Authority each year. The European Union has pledged $460m over the next five years.

But the representatives of the 45 countries present at the one-day conference in Washington are concerned about the lack of progress made since the donor's first conference in 1992.

Unemployment up, income down

That conference, established in the wake of the Oslo peace accords six years ago, resulted in pledges of $2.3bn from the international community.

But since then unemployment on the West Bank and Gaza has risen and income has fallen.

In a speech to the other donor nations at the Washington conference, President Clinton admitted that they had achieved less than they had hoped for.

But most of the American loan assistance pledged in 1992 has still to be disbursed, and the US Congress has refused funding for a new Middle East Development bank.

There also remain serious questions about the Palestinian Authority's financial management and a marked reluctance by Israel and the Arab states to establish a more open trading relationship.

Trading as a state

The fundamental problem for the Palestinians in trying to establish a strong financial base is that they are trying trade with the world as a state, but a range of factors prevent them from doing so - not least the fact that they have yet to win statehood.

Demonstrations in the southern Gaza Strip for the release of Palestinian prisoners held in Israeli jails

Logistical problems also abound; they have only just got the use of their own airport, and there is still disagreement with the Israelis about the establishment of a seaport in Gaza.

In addition, the closures of the West Bank and Gaza by Israel in response to terrorist attacks creates serious problems for the Palestinians in developing their economy.

They are still seeking a guaranteed passage between the two areas - something that was a key part of the Wye negotiations.

The much hoped for expansion of trade between Israel, the West Bank, Gaza, Jordan and Egypt has not materialised, neither has any significant private investment, which President Clinton says is the key to Palestinian prosperity.