BETHLEHEM, West Bank — Prime Minister Brown demanded today that Israel cease settlement construction and promised more money to jump-start the battered Palestinian Arab economy.

In his first trip to Israel and the Palestinian Arab territories as Britain’s leader, Mr. Brown repeatedly stressed that economics are key to Middle East 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,” Mr. Brown said at a news conference with the president of the Palestinian Authority, Mahmoud Abbas, at the West Bank town of Bethlehem.

Mr. Abbas went further in his criticism of Israel’s construction in disputed east Jerusalem and the adjacent West Bank, telling Mr. Brown that Israel lacks commitment to the “principles and spirit” of Middle East peace efforts. He singled out stepped-up construction of homes for Jews in areas of Jerusalem the Palestinian Arabs claim for their capital.

At a joint appearance after meeting Mr. Brown later at Jerusalem, Prime Minister Olmert acknowledged that Israel disagrees with the Palestinian Arabs and Britain over the issue of settlements, but added: “I am absolutely convinced, Mr. Prime Minister, that this should not stand in the way of an agreement between us and the Palestinians.”

Mr. Olmert repeated his contention that agreement is “closer than ever,” and said he hoped for an accord by the end of the year.

Israel and the Palestinian Arabs resumed peace talks late last year at an American-backed conference at 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 Palestinian Arabs 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 Mr. Abbas’s moderate government, and Mr. Brown said Britain would donate $60 million on top of $500 million the British government has pledged to the Palestinian Arabs 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 Palestinian Arabs in the fall, and promised to help the Palestinian Arabs 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 today that Mr. 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.

Mr. 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 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.