Tony Blair, in his new role as Middle East envoy, unveiled a package of measures on Monday designed to aid the moribund Palestinian economy and inject fresh momentum into Israeli-Palestinian peace talks.

The former British prime minister said the four development projects outlined on Monday had been the subject of debate for some time, and that their significance should not be exaggerated. But he insisted that “without hope of prosperity, rising living standards and an economic stake in the future for ordinary Palestinians, the politics will never succeed”.

His announcement coincides with intensifying diplomatic efforts between Israeli and Palestinian negotiators to narrow their differences before a US-sponsored peace meeting in Annapolis, Maryland, expected to take place next week.

Mr Blair was appointed special envoy to the “Quartet” of Middle East peacemakers – the EU, Russia, UN and US – in June, with a mission to promote economic development and improve governance in the Palestinian territories.

It is not the first time the international community has tried to boost the Palestinian economy. However, past efforts have repeatedly faltered over the continuing lack of stability in Gaza and the West Bank, as well as the stringent security measures imposed by Israel.

The network of roadblocks and checkpoints make it very difficult for Palestinians to travel or move goods in the West Bank, while the almost complete closure of Gaza has made the majority of citizens there dependent on foreign aid.

Salam Fayyad, the Palestinian prime minister, welcomed Mr Blair’s announcement, but said his efforts would fail without an Israeli decision to lift travel restrictions. “We cannot have our economy growing unless there is freedom of movement – a lot more freedom of movement than we have now,” he said.

The projects unveiled by Mr Blair include the completion of a sewage treatment plant in northern Gaza – which has long been held back by Israeli concerns that pipes required for the facility could be used by militants to build rockets.

He also said Israel and the Palestinian Authority had now “green-lighted” an agro-industrial park in Jericho and moves to develop tourism in Bethlehem.

In a separate move, designed to boost the prospects of the Annapolis meeting, Israel announced on Monday that it would free 441 Palestinian prisoners and repeated a pledge not to build new Jewish settlements in the West Bank.

The plan falls short of Palestinian expectations, however. Mahmoud Abbas, the president of the Palestinian Authority, had called for the release of 2,000 prisoners. Palestinians had also been looking to secure an end to the expansion of existing settlements.

•Amr Moussa, the Arab League secretary, said he was encouraged by Israel’s statement on settlements, writes James Blitz in Cairo. “We hope it will produce a commitment,” he told the FT, adding that it was “a statement in the right direction”. However, Ahmed Aboul Gheit, the Egyptian foreign minister, said Israel needed to confirm it was implementing an immediate freeze. “My understanding of this Israeli announcement is that it must mean a freeze right now – a freeze on every settlement activity,” he said. “Or else we are toying with ideas.”