Tony Blair was seeking to persuade world leaders to provide $5.6 billion (£2.75 billion) in aid to shore up the Palestinian economy and breath life into the revived Middle East peace process at an international donors' conference in Paris today.

Britain's former prime minister is joint chairman of the conference, which was billed as a make-or-break event by Mahmoud Abbas, the Palestinian President.

"Without this support, without the payment of aid that will allow the Palestinian treasury to fulfill its role, we will be facing a total catastrophe in the West Bank and Gaza," he told the 68 delegations at the conference centre near the Arc de Triomphe.

The meeting has been described as the economic follow-up to Annapolis, the US city where Israelis and Palestinians agreed to re-start peace talks last month.

Gordon Brown was amongst the first donors with a pledge of $500 million (£245 million).

The European Union said it would give $650 million in 2008 and Condoleezza Rice, the US Secretary of State, said that Washington was offering $555 million - although this includes $400 million that needs approval from Congress. France is promising $300 million.

Mr Blair, now Middle East envoy for the Quartet trying to mediate between Israel and the Palestinians - the EU, the United Nations, the US and Russia - said the aid would be a step towards a stable Palestinian state.

"We will not rest until we have made that two-state solution a reality in this region of the world," he said.

President Sarkozy of France said: "After years of violence, after years of mistrust, Annapolis revived hope. Let us be generous. Let us be audacious. Peace depends on it."

Palestinian leaders say they need $5.6 billion over the next three years to prevent the collapse of their Government. Mrs Rice said they needed about $1.7 billion next year alone.

Up to 70 per cent of the funds will be used to fill in the budget deficit and pay the salaries of 150,000 public sector employees. The rest will be channelled into development projects, according to Salam Fayyad, the Palestinian Prime Minister.

An economist by training, Mr Fayyad is the architect of a reform programme designed to reassure donor countries that aid will not be squandered through corruption or in hand-outs to Government allies.

'The reforms are not abstract slogans but concrete actions which we have taken. I can say with certainty that Palestinian financial management is no longer a cause for concern,' he said.

But as the financial pledges rolled in, the issues which have derailed previous Middle East peace attempts re-surfaced in Paris.

Mr Abbas called for to end to Israeli settlements, military checkpoints and the wall being built to separate Palestinian territories from Israel.

'If we want to launch serious talks to end the conflict as we and the world have decided to do, then how can a key party pursue settlement activity and expansion,' he asked.

But Tzipi Livni, the Israeli Foreign Minister, said that for her country security remained a key to the peace process.

'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."