(Corrects paragraph 10 to read Arabs gave "much" not "most" of foreign aid in 2012)
RAMALLAH, West Bank, Jan 16 (Reuters) - Saudi Arabia will give the Palestinian government in the Israeli-occupied West Bank $100 million to help alleviate a worsening budget crisis, the Palestinian president's office said on Wednesday.
President Mahmoud Abbas has struggled to convince Arab countries to deliver a $100 million monthly "safety net" they promised when he secured de facto U.N. recognition of a Palestinian state in November, prompting Israeli sanctions.
Abbas thanked Saudi Arabia, a longtime benefactor to his government, for the funds, which will be transferred imminently.
"The state's budget is facing a large deficit as a result of the docking of Palestinian money by the Israeli government as a punitive step after the U.N. recognition of Palestine as an observer state," Abbas said in a statement.
The Ramallah-based Palestinian government has been hard-pressed to pay more than $300 million in monthly expenditures since Israel announced it would confiscate $100 million dollars it collects in customs taxes on their behalf each month.
Full salaries for public sector workers have not been paid in almost three months and government initiatives to increase revenue by collecting years worth of electricity and water bills from the public have been hampered by street protests.
The Saudi aid will make little progress toward lowering the government's debt of more than $1.3 billion to Palestinian banks and hundred of millions of dollars in unpaid contracts to the private sector.
Amid a downturn in its construction and manufacturing sectors and with its economic prospects hamstrung by Israeli restrictions, the West Bank government has been deeply dependent on foreign aid to pay its bills.
A high of $1.8 billion in foreign aid in 2008 plunged to $600 million last year, with Gulf countries scaling back their giving because of increased domestic spending over two years of Arab political uprisings and the global financial downturn.
An earlier $100 million gift from Saudi Arabia last July and donations from Iraq, Algeria and other Arab countries provided much of the Palestinians' foreign aid in 2012.
On Wednesday, the European Union announced some $133 million in annual assistance to the Palestinians and U.N. aid agencies servicing Palestinian refugees, in line with previous years.
The United States continues to withhold $200 million dollars in budgetary assistance, around half the aid it delivered to the Palestinians in 2012, amid Congressional objections to their bid for statehood.
(Reporting by Ali Sawafta and Noah Browning in Ramallah; Editing by Alison Williams)