The US funds may boost Abu Mazen's political fortunes
The United States has given $20m to the Palestinian Authority - the first time it has directly transferred funding to the body.
American officials say the aid shows their confidence in the leadership of the new Palestinian Prime Minister Mahmoud Abbas.
Mr Abbas, also known as Abu Mazen, is due meet US President George W Bush for talks in Washington in late July, a sign of US support for the Palestinian prime minister.
The US money will be used to repair roads and water systems that have been damaged during the three years of conflict with Israel.
"This is the first time we have ever given 20 million bucks straight to the Palestinian Authority," a US embassy spokesman told Reuters news agency.
Despite the historic deal, the sums are dwarfed by the billions of dollars given by the US to Israel over the years.
Previously, the US has only given aid to the Palestinians through third parties. American law prohibits direct funding due to concerns over corruption and fear it would be used to fund attacks against Israel.
So in this case a waiver has been signed by the state department to classify the funds as humanitarian aid and free of congressional control.
At a ceremony in Gaza, the deal was signed by acting US Consul General Jeffrey Feltman and the Palestinian Finance Minister, Salam Fayad, as well as Larry Garber, Gaza and West Bank regional director for the US Agency for International Development (USAID).
The US embassy spokesman said the funds would be transferred electronically to the Palestinian Authority after the ceremony.
Mr Feltman praised the new Palestinian administration for bringing transparency and accountability to the budget.
Mr Fayad said the Palestinians were in crisis and looking for a means of rapid intervention.
Benefits of peace
The BBC's James Rodgers, in Gaza, says the funds may also serve to boost the political fortunes of Abu Mazen.
Direct aid from the US may help to convince critics that the renewed peace process does have benefits, our correspondent suggests.
Abu Mazen is expected to discuss the US-backed roadmap for peace in the Middle East with Mr Bush during the talks in Washington.
He said in a statement that the key issues of the talks would be stopping Israeli settlement building in the West Bank and freeing Palestinian prisoners.
Former chief Palestinian negotiator Saeb Erakat said that Palestinian leader Yasser Arafat had given Abu Mazen "his complete blessing" to go on the trip, which comes during a three-month ceasefire by Palestinian militants.