Qatar's emir called on Tuesday for the immediate establishment of a $1 billion fund to help Palestinians in annexed east Jerusalem, and offered to contribute $250 million towards it.
Sheikh Hamad bin Khalifa Al-Thani, made the proposal at the opening of an Arab League summit, saying other Arab countries must provide the remainder, and that the fund would be run by the Islamic Bank in Jeddah, Saudi Arabia.
He gave no details for its implementation.
The Gulf Arab state last year promised $400 million to help rebuild the Hamas-controlled Gaza Strip, heavily damaged by successive Israeli military operations, the latest in November 2012.
The emir also proposed holding an Arab mini-summit in Egypt aimed at reconciliation between the Islamist Hamas movement and its rival Fatah, which controls the West Bank and is headed by president Mahmud Abbas.
In a speech to the summit, Abbas welcomed the aid proposal and the offer to host talks with Hamas.
"We welcome the proposal of the emir of Qatar to hold a small-scale summit dedicated to reconciliation, led by Egypt and based on the Cairo and Doha agreements," Abbas said.
"The agreement we reached in Qatar more than a year ago calls us to form a transitional government of independents and to move towards elections, and we are bound by that agreement," he said.
Hamas also welcomed the Qatari initiative, praising "the Egyptian, Arab and Islamic efforts to support and speed up Palestinian national reconciliation and unification," spokesman Sami Abu Zuhri said in a statement.
Reconciliation efforts between Fatah and Hamas, which has controlled Gaza since 2007 after ousting Fatah forces, stalled after an agreement in Doha in February 2012 between Abbas and Hamas chief Khaled Meshaal.
Qatar's simultaneous offer of funds for east Jerusalem came as Abbas's Palestinian Authority was debating a draft budget amounting to $3.9 billion, of which it said $1.4 billion would have to come from foreign financing.
Prime minister Salam Fayyad lamented foreign governments' failure to honour their aid pledges as he presented the 2013 draft budget to politicians and economists in Ramallah, the seat of the Palestinian Authority, on Monday.
"The principal reason for our financial crisis last year was the lack of payment of foreign financial aid that was counted on," he said.
On Friday, following a three-day visit by US President Barack Obama to Jerusalem and Ramallah, a top official in Washington said the US had unblocked almost $500 million in aid to the Palestinian Authority that had been frozen by Congress for months.
And Israel is to immediately unblock revenues it collects on behalf of the Palestinian Authority, frozen last year in retaliation for the Palestinians winning upgraded UN status, the Israeli premier's office said on Monday.
Total 2013 expenditure, including on development, would amount to almost $3.9 billion, the Palestinian Authority draft budget said.
The government's recurring deficit would be just over $1.0 billion, and its total deficit stands at $1.4 billion.
The draft will be discussed on Tuesday and Wednesday, and will have to be approved by Abbas by Sunday.
The Palestinian Authority's gross debt stands at $3.8 billion.
The World Health Organisation said on Monday that hospitals in east Jerusalem were at risk of failing to treat patients due to the Palestinian Authority's financial woes, calling on international donors to step up aid.
"The PA's debt to the East Jerusalem Hospitals Network (supported by the WHO and the EU) has persisted as donor support to the PA has decreased," it said.
"Staff salaries are consistently paid late and basic supplies for quality clinical care are lacking."
There is a "risk (of) closing down entire departments due to the increasing financial deficit," it said, urging donors to "support the PA to meet its obligations."