Palestinian President Mahmoud Abbas told representatives of 90 countries and organizations that without their financial aid, "we will be facing a total catastrophe in the West Bank and Gaza."

His prime minister, Salam Fayyad, appealed for $5.6 billion for an ambitious development plan over the next three years, including $3.9 billion for the budget to help build a viable economy and institutions for a future Palestinian state.

The Palestinian request came after U.N. agencies and non-governmental organizations operating in the West Bank and Gaza Strip released a statement to the donors' conference appealing for $462 million to meet humanitarian needs in 2008.

"In addition to continuing fatalities from direct Israeli-Palestinian conflict, 2007 saw a dramatic increase in deaths and injuries due to internal Palestinian violence," the groups said, adding the poverty rate stood at 57 percent and "food insecurity affects 34 percent of the population."

The West Bank and Gaza Strip have been split since June when the Palestinian Islamic Hamas movement forcibly ousted the Fatah-controlled Palestinian Authority, led by Abbas. An isolated Gaza has since been ruled by Hamas, which had overwhelmingly won the January 2005 elections, while the West Bank is being administered by the PA, recognized by the international community.

Addressing the donors' conference, U.N. Secretary-General Ban Ki-Moon called for "wisdom, pragmatism, and creativity" to revive the dying economy in Gaza, where its 1.5 million residents who rely on international aid are virtually besieged, as Israel controls its borders as well as its air and sea space.

"Humanitarian aid, by itself, cannot reverse the situation in Gaza," Ban said. "Unless broader steps are taken, the economic situation will worsen with deep and very possibly dangerous implications."

The one-day Paris gathering, the biggest of its kind since 1996, is aimed to support building Palestinian institutions for statehood, and comes in the aftermath of the U.S.-sponsored Middle East conference in Annapolis that re-launched Palestinian-Israeli negotiations that both sides want to complete before the end of 2008.

The meeting in France also brought U.S. Secretary of State Condoleezza Rice, Russian Foreign Minister Sergei Lavrov, and Quartet envoy Tony Blair, who described the pledges as "indispensable to the creation of that [Palestinian] state."

French President Nicolas Sarkozy, whose country pledged $300 million to the Palestinian economy over the next three years, said France supports an independent, democratic, peaceful, and sovereign state linking Gaza to the West Bank and East Jerusalem.

But given the economic and political disparities between Gaza and the West Bank, and with Abbas' reiteration at the Paris meeting that he would not dialog with Hamas unless it reneges on its "coup d'etat," it remains to be seen how a cohesive Palestinian state would be established and how Western donors would disburse aid to Gaza, if at all.

It thus came as no surprise when Hamas spokesmen blasted the donors' conference as a "declaration of war" on the group and is aimed to "flourish the Palestinian economy for serving the security interests of the state of Israel."

Israeli Foreign Minister Tzipi Livni told the donors that Israel supports efforts for Palestinian reconstruction, but that they must be accompanied with steps to improve security conditions for Israelis. "To restore faith in the peace process, we must not only build the foundations for the future, we must improve the economic and security reality in the present," she said.

The World Bank and International Monetary Fund in principle supports Prime Minister Fayyad's three-year economic plan – which includes slashing a bloated public payroll and reduce utility subsidies – saying it is ambitious but achievable.

Fayyad, a former IMF economist, has been lobbying to persuade Palestinian critics and international donors that the government has established a transparent accountability system to curb mismanagement and corruption, after more than $10 billion in aid was said to have gone to waste since the 1993 interim Palestinian-Israeli peace accords due to negligence and Israeli attacks.

Meanwhile, Abbas indicated that financial aid alone cannot bring Palestinian statehood and peace, saying he expects Israel to halt all settlement activities, to lift more than 700 military checkpoints, to stop the erection of the separation barrier and release thousands of Palestinian prisoners.

The World Bank and some other aid organizations seem to support the linking of economic support to Israel's easing of restrictions, as they have previously said that funds will not rebuild the Palestinian economy until Israel removes restraints on the movement of people and goods.

In addition to France's $300 million pledge over the next three years, the European Union has promised $650 million to the Palestinians in 2008 and $555 million from the United States. Germany also promised $290 million over three years, Japan $150, and $13 million from South Korea. Additional pledges were expected to be announced by the end of the donors' conference later Monday.

But if Israel refuses to lift its military restrictions, with Gaza remaining under a blockade and divided from the West Bank, many Middle East pundits believe that no amount of money could help revive the Palestinian economy or bring about the aspired Palestinian state in the next 12 months.