Washington (CNN) -- The United States will contribute $400 million in development aid to the Palestinian territories and work with Israel to loosen its "unsustainable" grip on Gaza, President Barack Obama said Wednesday.
Obama's announcement came after White House talks with Palestinian Authority President Mahmoud Abbas. The money will be used to build housing, schools, water facilities and health care systems in both the Palestinian Authority-controlled West Bank and Gaza, which is ruled by the Palestinian Islamic movement Hamas.
Obama called the situation in Gaza "unsustainable," and said the United States will work with its European allies, the Palestinians, Egypt and Israel to rethink the Israeli blockade of the territory. He said the United States already has begun "hard-headed discussions" with Israel over the matter.
"There should be a means by which we are able to stop the flow of arms that could endanger Israel's security," Obama said. "At the same time, we're doing so in a way that allows the people in Gaza to live out their aspirations and their dreams, both for themselves and their children."
Some of the money has been included in a 2009 pledge of $900 million for the Palestinian Authority, State Department spokesman P.J. Crowley said. About half of the latest amount will go toward the Palestinian Authority budget, with other amounts going through the U.S. Agency for International Development and the U.N. Relief and Works Agency.
The talks took place in the shadow of an Israeli raid on an aid convoy that tried to reach Gaza last week in defiance of the Israeli blockade. Killed in the raid were nine pro-Palestinian activists from Turkey, including one with dual Turkish-American citizenship.
The Israeli government has defended the raid, saying that it was necessary to maintain the blockade, and that the activists attacked the Israeli boarding party with clubs, knives, batons and firearms it took from the commandos.
Obama repeated that the long-term solution would be a permanent deal creating "a Palestinian state side-by-side with an Israel that is secure."
Abbas said the two talked about how to return to direct peace talks between the Israelis and Palestinians from the current "proximity" talks, in which U.S. officials serve as a go-between.
"What has happened is that we agreed that, should a progress be achieved, then we would move on to direct talks," Abbas said.
But Abbas came to the White House with one focus: "Gaza, Gaza, Gaza," a member of the Palestinian delegation told CNN before Wednesday's meeting. Abbas is willing to move forward on the immediate issues of security and borders and put off discussions of Palestinian refugees and the status of Jerusalem for later discussions, the official said.
But what the Palestinian leader is really after, the official said, is "too see if Obama has the political will to push Mideast talks forward."
CNN White House Correspondent Suzanne Malveaux contributed to this report.