French President Nicolas Sarkozy and Palestinian Authority President Mahmoud Abbas signed an agreement on Tuesday to establish an industrial zone in the Bethlehem area to boost the Palestinian economy.

The agreement was signed during Sarkozy's visit to Bethlehem, where he met with Abbas and other PA leaders.

Abbas thanked Sarkozy for agreeing to fund the $21 million project, which is expected to provide thousands of jobs.

Abbas also called on the European Union to play a more active role in solving the Israeli-Arab conflict.

The industrial zone will be built on a 530-dunam plot, PA officials said, expressing hope that the work would begin in the next few weeks.

After the meeting with Abbas, Sarkozy and his entourage visited the Church of the Nativity.

Abbas, speaking at a press conference in the city, hailed the French president as a "true and brave" friend. He added that the Palestinians were relying on the EU for financial aid.

Abbas said peace in the region depended on "removing the 60-year-old oppression" against the Palestinians. He called for dismantling Israel's security barrier in the West Bank and ending settlement there.

"Every Palestinian, be he or she a Muslim or Christian, should have the right to move around freely and to have free access to holy sites," Abbas said. "We hope to see the principles of the French Revolution, namely justice and friendship, implemented in Palestine."

Sarkozy described Abbas as a man of peace "whom we trust and support." He said his country's policy was to talk to men and women of peace and not terrorists. He added that during his talks with Israeli leaders, he had urged them to halt the policy of settlement construction.

Sarkozy also called on Israelis and Palestinians to "share" Jerusalem.

"It's a holy city for three faiths - Jews, Christians and Muslims," he said. "Can Jerusalem be for one party and not the other? I don't think so."

Earlier, Sarkozy dispatched his interior minister, Michele Alliot-Marie, to Ramallah to lay a wreath of flowers at the tomb of former PLO leader Yasser Arafat.