British Prime Minister Gordon Brown demanded Sunday that Israel cease settlement construction and promised more money to jump-start the battered Palestinian economy.

In his first trip to Israel and the Palestinian territories as Britain's leader, Brown repeatedly stressed that economics are key to Mideast peace, and said Israel should ease travel restrictions in the West Bank that have hindered commerce.

But his strongest comments were reserved for the settlements: "I think the whole European Union is very clear on this matter: We want to see a freeze on settlements."

"Settlement expansion has made peace harder to achieve. It erodes trust, it heightens Palestinian suffering, it makes the compromises Israel needs to make for peace more difficult," Brown said at a news conference with Palestinian President Mahmoud Abbas in the West Bank town of Bethlehem.

Israeli government spokesman Mark Regev said he would reserve comment on Brown's remarks until the British leader meets with Israeli Prime Minister Ehud Olmert in Jerusalem later Sunday.

Abbas went further in his criticism of Israel's construction in disputed east Jerusalem and the adjacent West Bank, telling Brown that Israel lacks commitment to the "principles and spirit" of Mideast peace efforts. He singled out stepped-up construction of homes for Jews in areas of Jerusalem the Palestinians claim for their capital.

Israel and the Palestinians resumed peace talks late last year at a U.S.-backed conference in Annapolis, Md. Both sides had originally aspired to reach a final peace deal by the end of the year, but have backed away from that goal somewhat because of arguments over settlements and whether the Palestinians are capable of enforcing security in areas they control.

Under the first phase of the internationally backed "road map" peace plan, which forms the basis of the negotiations, Israel was to freeze all settlement construction and the Palestinians were to crack down on militant groups.

The international community is trying to bolster Abbas' moderate government, and Brown said Britain would donate $60 million on top of $500 million the British government has pledged to the Palestinians over the next three years. He spoke of the need to create jobs by building industrial parks, promoting small businesses and putting up desperately needed housing. He announced plans to host an international investment conference for the Palestinians in the fall, and promised to help the Palestinians train their security forces.

Peace efforts are also complicated by the fact that the Gaza Strip is ruled by militants from Hamas. Ismail Haniyeh, who heads the Hamas government in Gaza, said Sunday that Brown should visit Gaza to see the "humanitarian crisis" caused by Israel's blockade of the territory, "unfortunately with the participation of several countries, including European countries and the British themselves."

Israel imposed a partial blockade on Gaza in response to rocket fire from the territory on southern Israel. A cease-fire currently in effect has decreased the rocket fire and has led Israel to increase the trickle of goods entering Gaza.

Brown's two-day visit to the region has been overshadowed by a claim from a Shiite militia holding five British hostages in Iraq that one of the captives killed himself.

The British leader arrived in the region after visiting Iraq, where he met with Prime Minister Nouri al-Maliki and discussed the plight of the British hostages kidnapped by a Shiite group a year ago. Shortly after his departure, he called the report that one of the men had committed suicide "a very distressing development" and demanded that the Shiite militia "immediately and unconditionally" release the Britons.

The British government has yet to authenticate the group's claim.