Just over half the money will come from the European Union.

The pledges were announced at a meeting of donors in Brussels organised by the EU and the World Bank.

They included $970m for reconstruction and recovery programmes, $47m for projects such as local elections and support for free media, and $18m in humanitarian aid.

The money is urgently needed to repair houses and power supplies destroyed during Nato's bombing campaign to evict Serbian forces from Kosovo

It will also be used to pay public sector workers at the United Nations' interim administration.

Nato spokesman Jamie Shea said there would be no sense in "spending billions to win a military campaign if we're not prepared to spend millions to secure the peace".

Pay packets

Joly Dixon, the UN official in charge of rebuilding Kosovo's economy, said the administration hoped to organise elections before summer 2000.

Bernard Kouchner urged governments to be generous

He said "substantial UN administration's $128m funding shortfall.

"The pledges we have had for the Kosovo budget for this year and the substantial pledges for next year will make the move to paying salaries - for judges, police, nurses, tax collectors and so on - possible."

The task of paying wages has been made slightly easier by the creation of a new Banking and Payments Authority, which was also announced on Wednesday.

The new authority will act as a banker to the administration and supervise the banking sector.

It will have many of the powers of a central bank, although it will not be able to issue its own currency.

The EU's commissioner for external relations, Chris Patten, said that with the immediate crisis now over, the hard work of rebuilding Kosovo's communities was only just beginning.

Earlier, Bernard Kouchner, the UN special envoy to Kosovo, had urged governments to be generous.

He said that investment in reconstruction would help reduce the threat of ethnically-motivated violence.

The EU and World Bank say that reconstruction in Kosovo can only succeed as part of a broader package for the Balkans, and estimate that Kosovo's needs over the next four to five years will amount to some $2.25 billion.