International Development Secretary Douglas Alexander said the cash was "only a first step" and urged other nations to follow suit.

It comes a day after US President George Bush pledged a £95 million aid package for Mahmoud Abbas' moderate government and called for a meeting of "donor" countries.

The Palestinian Authority was bankrupted after Israel withheld £30 million a month on customs revenues and restricted movements in the wake of the election of Hamas last year.

Tuesday's cash boost is designed to help it pay debts to firms that supply it, freeing up resources to pay public sector salaries, UK officials said.

It will be channelled through the Ministry of Finance - headed by Mr Abbas - and monitored by an international accounting firm to check it is correctly spent.

Mr Alexander said: "The recent conflict in Gaza has compounded the hardships faced by the millions of ordinary Palestinians in trying to live normal lives.

"People in Gaza need humanitarian supplies, but they also need to be able to go to work and earn money to put food on the table.

"Helping the Palestinian Authority to pay its debts increases Palestinian companies' ability to continue trading, and so to invest and employ more people.

"This will boost the economy, and demonstrates our clear support for the new Government. This is only a first step. I call on other donors to step up and enable the new Government to support the Palestinian people as soon as possible."