The Palestinian Authority has asked Israel for jurisdiction over West Bank land in the Jordan Valley for a development project valued at $2.1 billion, the head of Palestine Investment Fund said.

The Western-backed Palestinian Authority's plan comprises investment of $1.4 billion in a tourist resort on the Dead Sea shore and further spending of $700 million on a new city near Jericho, Mohammad Mustafa, head of the PIF, told Reuters.

Observers say, however, the frozen state of Palestinian-Israeli peace talks and tensions over Israel's expansion of settlements on lands Palestinian seek for a state do not bode well for the project in the near term.

"While economic development is not a substitute for the political process, economic prosperity in the future Palestinian state is important for peace and it has to be important for Israel too," Mustafa said. "This is our contribution towards a sustainable peace, through economic development," he said.

"It would be very important for the Jordan Valley region and Palestine at large by turning this area into an economic development area that will create jobs for thousands of people and bring the tourists to the region," Mustafa said.

The office of Israeli Defence Minister Ehud Barak has confirmed receipt of a PA request to redesignate the site, located in the 60 percent of the West Bank that falls under full Israeli control according to interim peace agreements.

It said in February the matter awaited the decision of military and political leaders.

Mustafa, speaking in detail on the project for the first time, said: "We hope that Israel will approve it as soon as possible so that we can lure more investors during a June investment conference in Bethlehem."

Citing a desire to advance an "economic peace" with the Palestinians, Israel has eased some movement restrictions in the West Bank over the last year. That step has contributed partly to economic growth estimated at around 7 percent in 2009.

But Palestinian policymakers and businessmen say Israel must do more, including allowing permits for development in "Area C", the 60 percent of the West Bank where Palestinians need Israel's permission to build.

The PIF is owned by the Palestinian Authority.

The Jordan Valley projects were going in parallel with the plans of PA to build the institutions of the state by 2011, Mustafa said.

The tourist project, called Moonlight Tourism City, is planned for a strip of 7 km (4 miles) of the 37 km (23 miles) of Dead Sea shoreline that fall within the West Bank.

The plan, obtained by Reuters, consists of hotels, chalets, a mall, a teaching hospital, a centre for health research and therapy centres, exploiting the rich minerals of the Dead Sea.

The $700 million develpment zone, Madenat Al-Qamar, is to contain agricultural, industrial and housing development. It is planned for north of Jericho, also on West Bank land that currently falls under full Israeli control. Both projects would create 50,000 jobs, Mustafa said.

Mustafa said that if they got Israeli agreement, infrastructure work for the Moonlight Tourism City could start in June and would be completed in five years.

PIF have already pitched the project to big Gulf investors and the signs were promising, Mustafa said.

Mustafa said President Mahmoud Abbas had raised the idea with U.S. government, Russia, Japan, South Korea, Egypt and Jordan and "the response we have received is encouraging".