Arab states are failing to help the Palestinians in Jerusalem, a Palestinian official said on Wednesday, criticising them for paying only a fraction of funds pledged to sustain Palestinian life there.

Foreign Minister Riad Malki's comments reflected the Palestinians' frustration over the Arab failure to support them in the face of what they see as an Israeli campaign to "Judaize" Jerusalem, the city at the heart of the Middle East conflict.

Palestinian Prime Minister Salam Fayyad, addressing an Arab economic summit in Egypt on Wednesday, said the city faced a "bitter reality" and urged the leaders to implement their previous resolutions on supporting Jerusalem.

"We are looking to you, brothers, to stand alongside Jerusalem", he said.

Malki, in an interview with the official Palestinian news agency WAFA, said the Palestinians had so far received only $37 million of $500 million pledged by Arab leaders at a summit in Libya in 2010.

JEWISH SETTLEMENTS

He compared generous financial support from the Jewish diaspora for Jewish settlements in Jerusalem with "great weakness on the part of the Arab and Islamic states".

The Palestinians want to make East Jerusalem, captured by Israel in the 1967 Middle East war, the capital of the state they aim to found in the West Bank and the Gaza Strip.

Israel sees Jerusalem as its capital. It annexed East Jerusalem and a belt of surrounding West Bank land after the 1967 war. The step has never won international recognition.

In a confidential report leaked earlier this month, EU envoys said Israeli policies were undermining the chances of East Jerusalem ever becoming the capital of a Palestinian state.

The EU diplomats said the past year had "again seen a further deterioration" of the overall situation in East Jerusalem.

The problems faced by Palestinians include the demolition of homes built without permits, which the Palestinians say are extremely hard to obtain, and the risk of losing the Israeli-issued ID which lets them live in the city.

The city's Palestinian economy has also been hit by the impact of the West Bank barrier Israel began building during the second Intifada, or uprising.

Erected with the stated aim of keeping out suicide bombers, the barrier has largely severed Jerusalem's Arab districts from their West Bank hinterland.

On top of the $500 million pledged last year, the Palestinians have asked the Arab states to finance projects in Jerusalem valued at around $430 million. Malki said it was unfortunate that Arab officials at the summit in Egypt had decided to postpone discussion of the Jerusalem projects until another summit scheduled for March.