There is a children's park not far from my Jerusalem home, which neatly illustrates international aid attempts to deal with the Israel-Palestine question.

The playground, really only known to the Palestinian local population, was paid for by an Italian contribution, funded through the EU and constructed by the UN Development Programme, and, at first glance, all looks in order with its see-saw, slides and climbing frame.

Then you notice the swings.

They hang from beams arranged in a circle, and when children swing with any oomph they crack into each other at the centre of the circle.

The park is well intentioned, fully funded but ultimately dysfunctional. As is the top-heavy folly of much of the aid industry that Tony Blair sought to wrestle with in Paris yesterday.

Raising the cash by itself won't ever be enough. Spending it on effective projects that are sustainable, capable of running themselves when the prop of foreign aid money is removed and in an environment of peace with the neighbours, especially Israel, is key.

Mr Blair was chairing the latest donor conference designed to generate financial support for the Palestinians, with the Atlantic nations taking the lead. Where, some might have asked, were the Arabs, especially Saudi Arabia, with their petro-billions? And why were they not taking the lead in helping their Arab co-religionists west of the Jordan?

It is true that the largest commitments of cash yesterday came not from the Arab world, but from America (£250 million in the first year), the EU (£300 million over the next three years) and Britain (£243 million in the same period).

But, then, the Arab world has long paid a price for the Israel-Palestine conflict that is hard to measure in pecuniary terms. The presence, over decades, of Palestinian refugees across the Middle East region has cost host nations dear; it almost cost Jordan's royal family its country in the early 1970s and cost Lebanon several Israeli invasions and occupations in the 1980s and 1990s.

There are few Arab nations that have not suffered because of the 20th century's messy second half in the Holy Land.

Arab nations also have a more visceral connection to the Israel-Palestinian question. They have felt every violent spasm of the conflict and, as a result, they have learnt a lesson Mr Blair and the other Western leaders would do well to heed.

There is no point, Saudi Arabia and other nations argue, throwing more aid money at the Palestinian issue unless a meaningful peace treaty is signed with Israel that results in it removing its occupation forces from land allotted to the Palestinians so they can get on with the business of nation-building.

In the eyes of many in the Arab world, to commit billions now, before any peace deal is signed between Israel and the Palestinians, is to put the cart before the horse.

This view is strongly echoed by human-rights groups, such as Oxfam, which point out that millions of dollars of aid to the Palestinians is being wasted because of problems caused by the conflict. Israel's concern with protecting itself means it sets up roadblocks and checkpoints all across the West Bank; these, in turn, stifle Palestinian economic activity; and for many aid workers it is heartbreaking to see their lorries sitting by the side of the road, frittering away precious budgets.

As Jeremy Hobbs of Oxfam put it, yesterday's pledges in Paris were being "poured into a leaking bucket". "The challenge is to fix the leak, not pour faster," he said.

I don't think any of this is news for Mr Blair. After all, he hosted a meeting in London in March 2005, when still prime minister, that was almost identical to yesterday's Paris summit. Mr Blair opened proceedings then with remarks that would not have sounded out of place yesterday.

Since taking on the Middle East job, Mr Blair has spoken repeatedly about the importance of crucial developments all happening at the same time or, as he puts it, "in parallel". In his view, the political negotiations between Israelis and Palestinians towards a final settlement must take place in parallel with the Palestinians enjoying an improvement in their economic outlook and the creation of effective Palestinian government structures, most crucially a security apparatus capable of dealing with lawlessness and militancy.

The Paris meeting meant the economic sphere made potentially significant progress yesterday. The challenge for Mr Blair is to not let the other two elements drag behind.