World powers urge Arabs to honor Palestinian pledges

LONDON (Reuters) - World powers called on Friday on Arab states to honor their financial and political pledges to help the Palestinians in their U.S.-backed Middle East peace effort with Israel.

The Quartet of Middle East peace mediators, which comprises the European Union, Russia, the United Nations and the United States, also called on Israel to freeze all settlement building and to dismantle outposts erected since March 2001 to prevent the collapse of the peace talks.

"The Quartet called for all donors to follow through on pledges made ... The Quartet encouraged the Arab states to fulfill both their political and financial roles in support of the Annapolis process," it said after talks in London.

U.S. President George W. Bush announced the resumption of peace talks between Israel and the Palestinian Authority with fanfare at a November 27 conference in Annapolis, Maryland but the negotiations have since yielded no visible progress.

Arab diplomats and foreign policy analysts suggest that the absence of tangible headway has disheartened Arab states, who are deeply skeptical of Bush's goal of achieving a peace deal by the end of this year.

"Let's remember this is not about the United States, this is ... for the Palestinian people," U.S. Secretary of State Condoleezza Rice said when asked if Arab doubts about the U.S. peace push has made them reluctant to contribute.

"Clearly if you made a pledge, you ought to fulfill it," she added at a news conference before Quartet members were to meet with Arab states including Saudi Arabia, Egypt, Jordan, Tunisia, Kuwait and the United Arab Emirates.

Norwegian Foreign Minister Jonas Gahr Stoere said the Palestinian Authority's need for money would grow more acute in the second half of this year and that donors need to "step up with budget support".

"We believe it is a real challenge for the motivation of the donor community that they need to see ... progress on the political track," he added.

According to U.S. figures, of $717.1 million in budget aid for the Palestinians promised by Arab League members, only $153.2 million has been delivered, all of which came from three countries: Saudi Arabia, the United Arab Emirates and Algeria.

In contrast, other donors -- chiefly the United States and European nations -- have disbursed $502.1 million of the $834.9 million they pledged, the U.S. figures showed.

Palestinian Prime Minister Salam Fayyad said Kuwait had announced on Friday it would allocate $80 million of the $300 million it pledged in December as budget support.

Fayyad said he was pleased because Kuwait had previously indicated all the money was to be used for development projects.

SHIFT ON GAZA

The Quartet also voiced "deep concern" over humanitarian conditions in Gaza, where Israel tightened its blockade after the Islamist Hamas movement seized power from Palestinian President Mahmoud Abbas's more secular Fatah in June 2007.

The major powers called for a shift in strategy toward Gaza, backing Egyptian efforts to broker an informal truce between Israel and Palestinian militants and to ease the embargo.

Israel says the blockade is aimed at stopping rocket attacks on Israel by Hamas and other militant groups.

Shortages of fuel, power and basic goods have strangled Gaza's economy and created a humanitarian crisis for its 1.5 million people.

Fayyad said progress in the peace process continues to be slow. He said Israeli settlement building undercut the peace talks and Israeli raids on areas under Palestinian control undermine the Palestinian Authority's security forces.

An Arab diplomat said many countries in the region were losing hope that Bush's peace effort was making headway.

"There is a sense of frustration that there aren't tangible dividends," said the diplomat, who asked not be named.

Speaking as she flew to London, where she will also have talks on Iran and Kosovo, Rice said the two sides were making progress in their negotiations despite the public doubts.

"The fact that one can't see churning under the water I think has led people to believe that there is nothing --- no progress is being made," Rice said. "And I just think it's not right. I think they are making progress."

She added: "I think it is far too early to start (having) any sense of despair about the end of the year."

Rice was due to take part in a three-way meeting with Fayyad and Israeli Foreign Minister Tzipi Livni on Friday before going to Israel and the Palestinian territories this weekend.

(Writing by Arshad Mohammed; Editing by Charles Dick)