The administration on Wednesday notified key congressional committees of its plans, which could be announced when outgoing US Secretary of State Colin Powell meets with Palestinian officials in West Bank early next week.
Officials said the Bush administration and its European allies are organising funds, monitors and technical assistance for the Palestinian presidential election in January to choose a successor to Yasir Arafat, who died last week.
The $20 million in US funding, sources said, would be overseen by Palestinian Finance Minister Salam Fayyad - a former International Monetary Fund official with strong US backing - and could be used to pay Palestinian Authority salaries.
A source said the move does not require congressional approval, but congressional notification.
The move comes less than a week after President George Bush said he believed a Palestinian state could be established in four years.
Bush administration officials told lawmakers that the president planned to use his waiver authority to provide the money directly to the Palestinian Authority "to jump-start the peace process", a senior congressional aide said.
American aid typically goes through international groups that bypass the Palestinian Authority, although Washington contributed directly to a fund used by the authority in the first year after the Oslo peace accord was reached in 1993.