BRUSSELS: The European Union signed an aid deal Tuesday with the Palestinian prime minister to bolster ties and promote economic development against a backdrop of a stalled peace process with Israel.

EU foreign affairs head Catherine Ashton told visiting Palestinian Prime Minister Salam Fayyad that an action plan approved by EU leaders was based on a "shared commitment to deepen our bilateral relations and strengthen our privileged partnership."

The plan provides eventually for a "fully-fledged Association Agreement" with the EU, Ashton noted.

Ashton said the relationship was based on a commitment to a Palestinian state, sustainable economic development, fiscal consolidation and "enhancing social cohesion throughout Palestine."

The focus will be on East Jerusalem, the Gaza Strip and Area C, the 60 percent of the West Bank under Israeli control.

"I am looking forward to working constructively with all partners towards a significant change in Area C," Ashton said.

Prime minister Fayyad said Area C "is of vital importance to the economic and political viability" of a future Palestinian state.

The two leaders signed a seven-million-euro EU funding agreement ahead of a meeting of Palestinian donors later Tuesday to "address the deepening financial crisis of the Palestinian Authority."

On Monday, the Palestinian Authority urged the world to step up financial aid and press Israel to allow economic development.

"We call on the international community to ... pressure the government of Israel to release our revenues and to provide the financial support required to maintain basic functions and services," said a Palestinian Authority report seen by AFP.