Almost half the money pledged at the one-day, 45-nation conference on economic assistance for the West Bank and Gaza, is from the United States and the European Union.

Speaking at the end of the conference, the American Secretary of State, Madeleine Albright, said the pledges sent out a message of hope.

The BBC's Paul Royall: Arafat insists that Jerusalem is the next major item in the peace process agenda

The US President, Bill Clinton, said he would ask Congress for a $400m increase in US aid to the Palestinians.

He said he wanted to send a signal that peace in the Middle East was a sound investment, but would only last if it gave real benefits to those involved.

Most of the money will be spent on infrastructure projects such as water supply, sewerage, roads and housing, but some will also go to social services and education.

US Secretary of State Madeleine Albright announces the outcome of the conference

Another conference, to be held in France or Germany in February, will look at which specific projects will receive funding.

The increase in US aid was announced as Mr Clinton went into talks with the Palestinian leader, Yasser Arafat.

They were meeting before the international conference, which had aimed to raise about $2bn for the Palestinians.

President Clinton announces the $400m aid increase

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

"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 healthcare."

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.

Richard Lister in Washington: "The Americans would like to see both sides apply a little less public rhetoric."

The BBC Middle East analyst says donors have pumped $2bn into Gaza and the West Bank in the last five years of the peace process, but Palestinian living conditions have declined by a third.

Mr Arafat has accused Israel of undermining the Palestinian economy with closures of Gaza and the West Bank.

Mr Arafat says he hopes the coming year will see the beginning of an independent Palestinian state.