However, the World Bank says the situation will only improve if Israel eases restrictions on the movement of Palestinian people and goods.
Monday's donor conference is the sequel to talks held last month in the US city of Annapolis, the first peace negotiations between Israelis and Palestinians in seven years.
The renewed peace talks are aimed at achieving an agreement on Palestinian statehood by the end of 2008.
Tzipi Livni, Israel's foreign minister, told the donor conference: "We welcome the Palestinian reform plan as a serious effort to build the basis for a responsible Palestinian state that the Palestinian people so deserve and that peace so needs."
The success of the gathering will be measured in more than financial terms. Pledges are also being seen as political support for Mahmoud Abbas, the Palestinian president.
Of the $5.6bn the Palestinian Authority hopes to secure, 70 per cent would go to reducing the government's deficit.
The Palestinian Authority is seeking $5.6bn in aid
70 per cent would go to reducing the government's deficit with the rest going into development projects
The EU has pledged $639.4m over the next year
The United States will give $550m
Conference host France promised $300m over the next three years
South Korea is contributing $13m
The remainder would go into development projects.
While the meeting will focus on plans to boost the Palestinian economy, envoys from dozens of countries are expected also to discuss outstanding contentious issues.
As delegates gathered, Palestinian negotiators said Israeli plans to build new homes on occupied land near Jerusalem could cloud the next round of peace talks, due to be held on December 23.
Nabil Abu Rdainah, a Palestinian spokesman, said: "We need a clear-cut Israeli decision concerning this issue."
Sarkozy called for a freeze in the building of Israeli settlements and Condoleezza Rice, the US secretary of state, said the dispute was "ever more reason that it's time to get an agreement" and appealed to both sides not to "consider every bump in the road to be a barrier".
"There is an assumption here that there is not going to be turbulence in this process. There is. I don't care how much you talk to people before, I don't care how much work you do. There will be turbulence," she told reporters.
Donor nations have been poring over a reform programme drawn up by the Palestinian Authority.
In a report coinciding with the talks, the United Nations warned Israel's restrictions on Gaza had pushed the local economy to the brink of collapse, reducing production to 11 per cent of capacity.
The UN Development Programme report said: "The private sector in the Gaza Strip is on the verge of collapse with no scope for recovery unless the strict imposed closure regime on the Strip is lifted."
Israel has so far balked at removing checkpoints scattered across the occupied West Bank, citing security concerns.
It has also tightened its military and economic cordon around Gaza since Hamas gained control of Gaza in June following factional fighting with Abbas's Fatah movement.
In one exception, Israel on Sunday allowed hundreds of Palestinians to leave Gaza for Mecca for the annual Hajj.
The political division of the Palestinian territory has further complicated the peace process, with the West Bank controlled by Abbas and Gaza ruled by Hamas.
Jacky Rowland, Al Jazeera's correspondent in Paris, said: "Everyone ... wishes to say that the people of Gaza will not be left out, that there are mechanisms in place to funnel money into projects in the Gaza Strip, bypassing the Hamas rulers in Gaza."
"But the real question here is, how can the Palestinian Authority ... be held to account for security threats [or other] problems emmanating from Gaza, since President Abbas, although he may be president of all Palestinians, effectively is not in control of Gaza and cannot really give security guarantees as far as that part of the territory is concerned."