It was hard to avoid the obvious seasonal message when Tony Blair, briefly playing the tourist, stayed overnight in Bethlehem recently: yes, there was room at the inn in the little West Bank town, a rare public vote of confidence in prospects for the Palestinian economy.

Britain's former prime minister has been travelling incessantly since becoming the representative of the "Quartet" of Middle East peacemakers in the summer, and generally keeping a low profile.

Today he will be centre-stage in Paris, co-chairing a grand conference of 90 countries and organisations expected to pledge $5.6bn (£2.75bn) for Palestine.

"This is the moment when flash is supposed to turn to bang," quipped one diplomat.

The Paris event, far from the bleak grind of daily violence, Israeli roadblocks and humanitarian crisis, is being billed as "the economic Annapolis" - the substantial follow-up to the formal re-launch of Israeli-Palestinian negotiations at last month's Maryland summit.

Blair's pitch is that a re-invigorated peace process, improved Palestinian capacity and Israeli withdrawals are all inter-linked.

"Without the political deal then you won't get the Palestinians able to build their own state and without the Palestinians building their own state then the facts on the ground won't change," he told al-Jazeera on Friday.

Crucially, though, there is little evidence so far of Israel's readiness to ease restrictions on the Palestinians, vital if efforts to boost their faltering economy are to be successful, as the World Bank and Oxfam both warned in the run-up to the conference.

If Israel's closures, checkpoints and barriers remain in place, the bank argued, the money would at best slow a "downward cycle of crisis and dependence" while an easing of restrictions could help the private sector recover and generate double-digit growth.

"Israeli policies that impact the Palestinian economy and Palestinian actions on security to reinforce these policies must proceed in parallel," it said.

The human reality behind the dry analysis is grim: frozen construction projects mean fewer new homes for refugees. The lack of parts or fuel spells shortages of water or raw sewage pouring into the sea.

"Will we have to wait for a catastrophe before the Israeli army lets spare parts enter?" asked a frustrated Maher al Najjar of the Municipality Water Utility in Gaza.

Saudi Arabia is understood to have pledged $450m, and there are hopes for substantial sums from the smaller Gulf states.

"A lot of work has been done behind the scenes to raise money from the Arab world," said one senior official. "If the Arabs come up with a lot of money it will make it easier for the Americans to work on the Israelis. This cannot be just another western effort."

The US offer, to be announced by Condoleezza Rice, the secretary of state, is in the region of $500m, though it will need to be ratified by Congress. The European Commission has promised $500m-730m; Gordon Brown, $500m.

Under prime minister Salam Fayyad, a respected former World Bank economist, the Palestinian Authority has drawn up a three-year reform and development plan.

"Whilst the stalled peace process and the tightening grip of the occupation have played powerful roles in shaping events, shortcomings in governance, law and order and basic service delivery have not received the sustained attention they deserve," says the draft obtained by the Guardian.

"We are determined to rebuild the trust and faith of our citizens, and our international partners by embarking on a challenging reform agenda for stabilisation and recovery."

The PA pledges both to cut government spending and reform Palestinian institutions. Some 70% of the aid is for budget support (including the salaries of more than 150,000 state employees) and 30% for development.

The plan predicts annual growth of about 5% - provided Israel eases up. It was the failure to implement improvements on "movement and access" that scuppered the mission of James Wolfensohn, Blair's predecessor as Quartet envoy.

Israel wants the Paris discussions to stick strictly to economics, arguing that political issues are being dealt with on the Annapolis track, though the first negotiating round last week began badly with complaints about the provocative expansion of the Har Homa settlement in East Jerusalem.

It wants more work on Palestinian security reform. "What we have seen so far is not sufficiently detailed," complained one Israeli diplomat.

The point Blair wanted to make by staying in Bethlehem is that tourists and investments are both safe and welcome - though a poignant olive-wood souvenir produced by local craftsmen depicts a manger scene split in half by a giant wall representing Israel's controversial West Bank "security barrier".

Oxfam says the barrier/wall costs Palestinians 2-3% of GDP a year.

Scepticism about the benefits of aid is deep-rooted: despite receiving $10bn in international funds since the formation of the PA after the Oslo agreement in 1993, Palestinians are getting poorer; 65% now live below the poverty line. Per capita GDP in 2006 was 40% less than in 1999, on the eve of the second intifada.

Eighty percent of Palestinians are dependent on aid. Oxfam points out that millions of dollars of aid is already being lost due to Israeli policies. The economics won't work, critics chorus, unless the politics change.

And things have got much worse since Israel's unilateral withdrawal from the Gaza Strip in 2005, the takeover by the Islamist movement Hamas - and the continuing blockade.

Palestinian divisions are crippling enough, but as the International Committee of the Red Cross commented last week, "the measures imposed by Israel come at an enormous humanitarian cost, leaving the people living under occupation with just enough to survive but not enough to live a normal and dignified life."

Paris is likely to produce few surprises and a lot of cynicism about whether, or how, the outcome will make a difference on the ground. It'll be important to add up the cash pledges - but hard to say what it will all really amount to.

"I'm aware of the fact that people are very sceptical in this region as to whether we will succeed or not," conceded Blair. "But we have got to try because there is no alternative but to make this succeed."