US Secretary of State Hillary Clinton announced new aid of $150m (£93m) for the Palestinian Authority on Wednesday - part sweetener, part vital support for Palestinian institution-building, a track running parallel to the negotiations.

"We have to move forward together, simultaneously and mutually reinforcing on two tracks, the hard work of negotiations and the hard work of building institutions and capacities," said Mrs Clinton, speaking at the state department.

"Progress on this second track gives confidence to negotiators, removes excuses for delays and underscores that the Palestinian Authority has become a credible partner for peace," added Mrs Clinton, who was joined via video link by Palestinian Prime Minister Salam Fayyad in Ramallah.

"The announcement is a sign of confidence and commitment, commitment to the two-state solution and confidence in the integrity of the Palestinian Authority and its finance ministry," said Ziad Asali, from the American Task Force for Palestine in Washington.

Donating millions
The new US money will help the Palestinians close a budget gap before the end of the year.

The US and the EU are two of the largest single donors to the Palestinians. During the 2010 fiscal year, the US gave a total of $739.9m (£458.9m).

Some of it goes directly to budget assistance, including the payment of bills - freeing up money for the Palestinian Authority to pay salaries.

The aid also pays for development projects and Palestinian security training.

Some of the aid from the US and EU goes to training for Palestinian security officers
The EU gives an average of $700m per year.

This latest influx of cash comes at a time of intense frustration for those involved in the peace process.

Negotiations, launched with great pomp by President Barack Obama in early September, ran aground after just two rounds of talks.

Israel's moratorium on settlement building expired at the end of September.

The Palestinians threatened to walk away if it was not extended, though they held a second round of talks after the partial freeze expired.

And Washington has been unable to break the impasse, even though the crisis was widely expected.

Israel has now announced new plans to build 1,300 settlement homes on the West Bank but dismissed any suggestion it would have an impact on the peace process.

The plans have drawn international condemnation, including disapproval from Mr Obama.

"This [Israeli] announcement was counterproductive to our efforts to resume negotiations between the parties," said Ms Clinton, as she announced the aid.

The chief US diplomat will meet Israeli Prime Minister Benjamin Netanyahu in New York on Thursday.

Recriminations
Meanwhile, Palestinian President Mahmoud Abbas has called on the UN Security Council urgently to discuss continued Israeli settlement building, while Palestinians have been pushing for the international community to recognise outright a Palestinian state.

The US, which has called on both parties to refrain from unilateral actions, is unlikely to support such a move.

President Mahmoud Abbas has called on the UN to discuss Israeli settlement building
But amid the recriminations over the lack of progress in peace talks, there is concern about future funding for the Palestinian Authority and the sustainability of progress made on the ground in the West Bank.

Ms Clinton quoted a World Bank report stating that if the Palestinian Authority maintained its momentum in building institutions, it would be well-positioned for the establishment of a state in the near future.

"Our concern is - how do we protect this institution-building programme from the vagaries of the political process, which has slowed?" asked Ziad Asali.

The current Palestinian economic growth rate of 9% is made possible by foreign aid, but observers warn this is unsustainable in the long term.

In the absence of peace negotiations, frustrations on the ground could also lead to an eruption of violence, undermining the work done over the past few years by Mr Fayyad.

At the state department, Mrs Clinton welcomed the recent contributions made by the United Arab Emirates and Saudi Arabia but encouraged them and others to do more.

Failure to pay
Washington has expressed frustration in the past about the Arab world's failure to give the Palestinians adequate financial support.

Saudi Arabia has pledged close to $2bn (£1.2) over the past three years but paid only $630m.

"It's inexplicable as to why Arabs would not provide funds to the PA when they claim that the Palestinian issue is their top priority," said Joshua Block, a senior fellow at the Progressive Policy Institute and former spokesman for the pro-Israel lobby group Aipac.

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We think it is in the US national interest to promote strong national institutions within the Palestinian Authority”

The US, however, opposes a Palestinian unity government with Hamas, leaving Mr Abbas in the difficult position of having to juggle the differing agendas of two crucial supporters.

"Israel destroys the Palestinian economy, and then we pay the bill. We are funding the outcome of Israel's policy," another Middle East expert in Washington said.

He added that "what the Arabs are doing is not without logic".

"They are slow to pay because of the lack of a peace process. They're paying late and unhappy about it, but paying nonetheless."

Another source of concern is the make-up of the new US Congress, which will come into session on 3 January.

Republican representatives will rise to leadership positions in crucial areas, like the House Foreign Affairs Committee and State and Foreign Operations Sub-Committee.

Ileana Ros-Lehtinen, from Florida, and Kay Granger, from Texas, may call for general cuts in foreign aid and for the Palestinian Authority in particular.

Mr Block warned that in the current climate, if Mr Abbas was seen to be dragging his feet in the peace process, the issue of US funds for the Palestinian Authority would come under greater scrutiny in Congress.

"We think it is in the US national interest to promote strong national institutions within the Palestinian Authority," said state department spokesman PJ Crowley, citing the positive impact this has on the peace process.

"We believe this is a case we have made successfully to the Congress in the past, and we will make the case again."