Palestinians face $400 mln shortfall despite aid

UNITED NATIONS, Sept 22 (Reuters) - Palestinian authorities face a $400 million shortfall in the 2009 budget despite increased financial aid from international donors in recent months, Norwegian Prime Minister Jens Stoltenberg said on Tuesday.

"We note that there has been increased funding coming to the Palestinians, that's on a positive note," Stoltenberg told reporters at the United Nations.

"But on the negative side there is still a shortfall of $400 million in the Palestinian budget which needs to be addressed," added Stoltenberg, who heads the Ad-Hoc Liaison Committee that tracks aid to the Palestinians.

He said the increased support came after a meeting of international donors in June in Oslo.

Donor states have announced massive pledges for the Palestinians over the last two years in a show of support for President Mahmoud Abbas in his power struggle with Islamist movement Hamas, which won a 2006 Palestinian election.

To offset the shortfall in donor funds, Abbas' Palestinian Authority has been forced to borrow from private banks.

Former British Prime Minister Tony Blair, now a Middle East envoy, urged Israel to ease its blockade on the Gaza Strip and allow legitimate inflows of funds, a move he said could help push forward the Palestinian-Israeli peace process.

This should be reciprocated by the release of Israeli soldier Gilad Shalit, who has been held by Hamas since June 2006, Blair added.

"We've had limited success in getting money in from time to time," Blair told the news conference. "It is incredibly important for legitimate business in Gaza that we get the money in.

"It very important to get money in and to get materials in to start building Gaza up. That enables legitimate business to be done by legitimate business people and ordinary people in Gaza."

Thousands of buildings were destroyed during Israel's Gaza offensive, launched on Dec. 27 with the declared aim of forcing Islamist Hamas fighters and other Palestinian groups to stop firing rockets and mortars at Israeli towns.

Israel prohibits imports of cement and steel reinforcing rods, saying Hamas could use them to construct defenses.