Prime Minister Gordon Brown urged Israel on Sunday to stop settlement expansion on occupied land, saying it was making it harder to reach a peace deal with the Palestinians this year.

In his first visit as prime minister to Israel and the Palestinian territories, Brown announced $60 million (30 million pounds) in new aid to the Palestinians.

Officials said it included $30 million in direct budget support for President Mahmoud Abbas's government in the occupied West Bank, as well as funds to help train his security forces, which Hamas routed in the Gaza Strip a year ago.

At a news conference with Abbas in the West Bank city of Bethlehem, Brown said Britain wanted Israel to freeze Jewish settlement building.

"Settlement expansion has made peace harder to achieve. It erodes trust. It heightens Palestinian suffering. It makes the compromises Israel will need to make for peace more difficult," he said.

Abbas and Israeli Prime Minister Ehud Olmert launched peace talks last November at a U.S.-sponsored conference in Annapolis, Maryland with the goal of reaching a statehood deal before U.S. President George W. Bush leaves office next January.

Olmert, who will meet Brown later on Monday, said last week the Israelis and Palestinians had never been so close to a peace deal, though problems still had to be overcome.

Citing obstacles such as settlement building, Abbas said an agreement this year would require "a tremendous effort".

"I would urge all those who are part of the negotiations at the moment to seize this opportunity, . to move the talks forward," said Brown.

He visited the Church of the Nativity, on the spot in Bethlehem where Christians believe Jesus was born, and laid a wreath at the Yad Vashem Holocaust memorial in Jerusalem, saying "nothing prepares us for what we see here".

DELIVER ON AID PROMISES

At a meeting with Palestinian business leaders, Brown urged Western donors to make good on their promises of financial support to the Palestinians.

"I believe that the Palestinian economy can become one of the most successful in the region," said Brown, who on Monday will become first prime minister to address Israel's parliament.

His $60 million pledge will bring support for the Palestinians to $175 million for 2008. Late last year, he pledged $500 million over three years.

Brown said he and Abbas agreed to host another investment conference in London later this year to follow up on pledges made at one in Bethlehem in May.

Brown, who succeeded Tony Blair as prime minister in June last year, has seen his poll ratings plunge as the credit crunch and high fuel prices have hit the economy. His Labour party lags behind the opposition Conservatives by up to 20 percentage points in opinion polls.