About 1,200 businesspeople, including 500 Arab and foreign participants, are expected to attend the conference.
Amongst those attending are Bernard Kouchner, the French foreign minister, and Tony Blair, the current envoy of the Middle East diplomatic Quartet, which is monitoring the Israeli-Palestinian peace process.
About 109 projects, costing about $2bn, will be presented by Palestinian business leaders to potential investors.
Hassan Abu Libdeh, the conference director, said: "Two billion dollars may seem like a modest sum but in Palestine it would lead to the creation of 50,000 jobs over a period of three to five years if these projects are undertaken.
"Most of the projects to be presented involve infrastructure and housing."
|Abbas delivered the opening speech at the|
Bethlehem conference on Wednesday [AFP]
Mahmoud Abbas, the Palestinian president, said he hoped the conference would "strengthen the foundations for peace and security in the region," in an opening speech to those attending.
He said the event was important in light of the challenges faced by Palestinians.
"We hope the conference will succeed, that we have some success here," Abbas said.
The idea of the Bethlehem gathering was launched at a Paris conference of donors in December.
The donors pledged $7.7bn in assistance for the Palestinian territories, but by early May only $717 million was actually paid out.
The World Bank says that since 2000, the Palestinian economy turned from one being driven by investment and private sector productivity to one sustained by government spending and donor aid.
In a report published last month, the World Bank said Palestinian economic growth would be stagnant throughout 2008.
"After a good performance in the latter 1990s, the fragile Palestinian economy entered a gradual downward cycle of crisis and dependence," the report said.
The West Bank's economy is crippled by more than 500 Israeli roadblocks which hamper movement throughout the occupied territory.
Israel, which set up the barriers after the second Palestinian intifada in 2000, says the restrictions are necessary for security reasons.
Israel recently announced the removal of some of roadblocks.