BETHLEHEM, West Bank (AFP) - Prime Minister Gordon Brown on Sunday pledged new aid to the Palestinians and called for a freeze on Israeli settlement building to bolster the Middle East peace process.

"We have pledged 500 million dollars for economic development in Palestine over three years to 2011," Brown said after meeting Palestinian president Mahmud Abbas in the West Bank town of Bethlehem.

"I can announce today a further commitment of 60 million dollars," Brown said on his first visit to the region as Britain's premier, bringing total British aid in 2008 to 175 million dollars.

Brown called for a freeze on Jewish settlements in the occupied West Bank, echoing criticism by the United States, saying their expansion had "made peace harder to achieve."

Settlement expansion "erodes trust, it heightens Palestinian suffering, it makes the compromises Israel will need to make for peace more difficult," Brown said, adding that there must also be a halt to violence on both sides.

In keeping with his "economic roadmap" to peace, Brown pledged support for a new mortgage finance authority which he said would help to finance some 30,000 new Palestinian homes and generate up to 50,000 new jobs.

Brown -- who spent 10 years as finance minister under Tony Blair, whom he succeeded as premier in June 2007 -- called for increased international investment in the territories, saying "Palestine is open for business."

Prosperity would "make the cost of ever returning to violence so high and so unacceptable that the vast majority will not want to have anything to do with those who preach violence," he said.

After meeting Abbas Brown chaired a meeting with the heads of British and Palestinian business leaders at which he said increased prosperity would prevent a return to the violence that has plagued the territory in the past.

Brown also met Palestinian prime minister and former World Bank economist Salam Fayyad who said the economy had "been ravaged for many, many years" and was "performing way below potential."

"If it were not for those conditions of the past eight years, our economy could easily have been twice the size it is today," Fayyad said, referring to the 2000 Palestinian uprising and the Israeli military crackdown that followed.

Brown then visited the Church of the Nativity in Bethlehem, built on the site where Jesus is said to have been born, before returning to Jerusalem for talks with Israeli Prime Minister Ehud Olmert.

He has been invited to address the Israeli parliament on Monday -- the first time a British premier will make a speech to the Knesset.

On Sunday, Abbas thanked Brown for his support as he called on Israel to ease closures of the Palestinian territories and halt the growth of Jewish settlements.

"What is required for these investments is to assure the freedom of movement of goods and of people," Abbas said at the joint news conference, referring to Brown's economic plans.

Brown's predecessor Blair is now the Middle East Quartet's envoy, representing the European Union, Russia, the United Nations and the United States in efforts to advance Israeli-Palestinian peace talks.

The US-sponsored talks between the two sides, formally relaunched last November, are aimed at resolving the conflict before US President George W. Bush leaves office next January.

However the talks have become bogged down amid violence in the Islamist Hamas-ruled Gaza Strip and the expansion of Jewish settlements in the West Bank and annexed east Jerusalem.

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