Officials from about 30 countries and about 20 international organisations attended the conference in Stockholm which was hosted by Sweden, Norway and Spain in collaboration with the UN aimed at raising funds for the Palestinians.
Of the funds raised, $A150 million would be channelled to non-governmental organisations working in the Palestinian territories, including $A76 million earmarked for the UN appeal, Swedish Aid Minister Carin Jaemtin said.
The minister said the rest of the money will go towards the rebuilding of infrastructure and other projects.
"Some countries ... have pledged money through the Temporary International Mechanism (TIM) which was set up by the EU," and others pledged money through the World Bank for more long-term development, she added.
Other nations, mostly from the Middle East, also pledged money directly to the Palestinian Authority.
"The benefit of giving to the UN is that then we have a system for distributing the money," Ms Jaemtin said.
Few specific details on the donations emerged, although Norway announced funding of $A13.1 million and the European Commission said it would release $A84 million for the Palestinian territories, including $A35 million for the UN appeal.
Sweden is also to increase its aid to the Palestinians by $A23.6 million, including $A10 million for the reconstruction of Gaza's power station.
On Thursday, donors pledged $A1.2 billion of help to rebuild Lebanon.
'Time bomb'
UN relief coordinator Jan Egeland hailed the pledges for the Palestinians.
"I hope that this conference here could represent some kind of a rock bottom for how deep we could sink in despair for the Palestinian territories and that we now move forward," he said.
He criticised the Palestinians' isolation, especially the closure of the road linking a supply facility in Karni to Gaza, which has led to a lack of basic foodstuffs, medical supplies and fuel.
He said that 1.4 million Palestinians were "living in a cage" with border crossings closed and electricity and water shortages.
In the 25 years he had been visiting the Palestinian territories, he said he had "never seen so much hatred and bitterness" as during his last visit and he urged both Israel and Palestinian militants to cease hostilities.
"It's not only a question of more money... it's also a question of third parties going in and mediating a solution between the Palestinians and the Israelis," he said.
Mr Egeland said the Palestinians needed at least as much aid and money as the Lebanese and told the meeting that the Gaza Strip was a "ticking time bomb" after a devastating two-month Israeli offensive.
"If there is no hope ... you can probably expect that the extremist groups have a lot of possibilities to recruit among the hundreds of thousands of youths," he warned.
Earlier this year the US and European Union froze aid to the Palestinian Authority because of Hamas's refusal to renounce violence and recognise Israel.
A limited flow was later restored though aid workers say it is not enough.
Swedish Foreign Minister Jan Eliasson described the humanitarian situation as "critical".
"More than 70 per cent of the population in Gaza is dependent on international relief to cover their daily food needs," the minister said.
At least 204 Palestinians and one Israeli soldier have been killed in Gaza since June 28, when Israel launched its offensive to stop Hamas militant rocket attacks into its territory and recover an Israeli soldier captured by the militants three days earlier.
Unemployment is high, and in Gaza, the UN says nearly 80% of people live in poverty.
Palestinian gratitude
Mohammad Mustafa, economic adviser to Palestinian president Mahmoud Abbas, voiced gratitude for the assistance but stressed the solution to the crisis was above all political.
"Though we very much appreciate these efforts and clearly welcome them, we strongly believe that this man-made humanitarian crisis is political in nature and thus calls for a political solution," Mr Abbas said.
"It should not be the responsibility of the international community to pay for the Israeli destruction of Palestinian infrastructure.”
Palestinian Prime Minister Ismail Haniya has urged public sector workers in Gaza and the West Bank to abandon plans for an open-ended strike over the non-payment of their wages, saying Palestinians needed to remain united in difficult circumstances.
Meanwhile, at informal talks in Finland, EU ministers debated whether the Middle East road map for peace was still in place and how to boost contacts with regional players like Syria, and perhaps eventually, the ruling militant group Hamas.
European External Relations Commissioner Benita Ferrero-Waldner called for direct talks between Israeli Prime Minister Ehud Olmert and Palestinian leader Mahmud Abbas, saying it "could help certainly at the right moment."
Two Palestinians killed
Meanwhile medical and security sources say two Palestinians have been shot dead at Beit Hanoun during an Israeli incursion into the north of the Gaza Strip.
The victims were named as Mohammed Abu Oda, 60, and his son Ismail, 28.
Later, another Palestinian was killed by Israeli fire at the Kissufim border crossing, bringing to three the Palestinian death toll in the Gaza Strip early Saturday, medical, security and Palestinian sources said.
On June 28 Israel launched military operations in the Gaza Strip to recover an Israeli soldier seized by Palestinian groups and try to end the firing of homemade rockets against its territory. More than 200 Palestinians have died in the operations.