"Without the continuation of this aid and without the liquidity needed for the Palestinian budget, we will have a catastrophe in the Gaza Strip and in the West Bank," Mahmoud Abbas, the Palestinian president, said.
 
Condoleezza Rice, the US secretary of state, also spoke of the need to secure the funding, calling the conference the Palestinian government's "last hope" to avoid bankruptcy.
 
Major donors

The European Union pledged $650m over the next year, while France and Kuwait promised $300m over the next three years.
 
Most of the $555m promised by the US had been previously announced, but is yet to be confirmed by congress.

Analysis

Paris aid conference

Britain and Germany pledged a combined $1.08bn by 2010.
 
However, the World Bank says the situation will improve only if Israel eases restrictions on the movement of Palestinian people and goods.

Nicolas Sarkozy, the French president, said: "The Paris conference must provide immediate support for all the Palestinian territories.

"Our financial support will also be used for the population of Gaza. Its prolonged isolation carries great political, economic and security risks.
 
"The entry points must be reopened to let the economy breath. A full and immediate freeze of settlement activity is a priority."

Peace negotiations

Monday's donor conference came after last month's talks 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.

Financial facts

- More than 90 donors pledged a total of $7.4bn, with $2.8bn earmarked for 2008 alone

- Mahmoud Abbas, Palestinian president, had asked for $5.6bn

- EU donated $650m for 2008, $555m for 2008, Saudi Arabia $500m over three years, UK $490m over three years

- Estimated $10bn given to Palestinians over past decade, according to World Bank

- More than 70% of families in Gaza, home to 1.5m people, earn less than $1.2 a day, World Food Programme estimate says

But at the conference, Abbas ruled out talks with the Hamas movement which seized total control of Gaza in June.
 
He said that Israel must freeze Jewish settlements "without excuses" if it wants to be seen as a serious peace partner.

"If we want to launch serious talks to end the conflict as we and the world have decided to do, then how can a key party pursue settlement activity and expansion?" he said.
 
Tzipi Livni, Israel's foreign minister, did not directly address the settlement issue, but welcomed the Palestinian plans "as a serious effort to build the basis for a responsible Palestinian state".

Rice said the settlement 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."
 
Political support

The success of the gathering will be measured in more than financial terms. Pledges are also being seen as political support for Abbas.
 
Of the $5.6bn the Palestinian Authority hoped to secure, 70 per cent would have gone to reducing the government's deficit.
 
The remainder would have been used for development projects.

Jacky Rowland, Al Jazeera's correspondent in Paris, said: "What we've been hearing from people attending the conference has been the mixture of opportunity and also risk.
 
"The opportunity now to cease the political momentum started at Annapolis, the good relations and the willingness to engage between the Israeli prime minister and the Palestinian president.
 
"But at the same time, really quite stark warnings of what is at stake if in fact this money does not come through and the international mission to rebuild the Palestinian economy and build the foundations of a state are not successful.

"Clearly the subtext of this conference is to boost the authority, popularity and credibility of the authorities of President Abbas, at the expense of Hamas."
 
Gaza 'collapse'
 

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In a report coinciding with the talks, the UN warned that Israel's restrictions on the Gaza Strip 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 in June following factional fighting with Abbas's Fatah movement.

Familiar sound
 
Al Jazeera's David Chater in Gaza said: "There is a very familiar sound coming out of the conference in Paris from the donors, the diplomats and the politicians.
 
"The [recent] UN report [shows] that there is a huge dislocation between the fine words and the promises we're hearing in Paris and the situation that we are hearing on the ground.
 
"Nothing has changed, it's getting worse."
 
On the ground, Israel killed at least five Islamic Jihad fighters in the Gaza Strip on Monday, including a senior commander and a leading rocket maker, prompting the group to threaten suicide bombings in revenge.