Representatives of 90 nations and international organizations were meeting to extend financial support to the Palestinian authority, as well as to back recent peace talks with Israel.
Palestinian President Mahmoud Abbas is seeking $5.6bn by 2010 in order to establish a viable Palestinian state.
"In 2008, we will make a contribution of 440 million euros ($650 million) in grants to the Palestinians," European Commissioner for External Relations and European Neighborhood Policy, Benita Ferrero-Waldner said.
"Of this amount, 115 million euros will go to UNRWA and humanitarian aid. More than 325 million euros (about $500 million) will contribute to the implementation of the Palestinian Reform and Development Plan, including a significant share to cover the Palestinian Authority's recurrent expenditure needs," the official said, adding that the European Investment Bank would make a further donation.
French President Nicolas Sarkozy said when opening the conference that France would give $300 million over the next three years.
Sarkozy also said that the goal of the Paris conference was to "provide immediate support to all Palestinians."
"Our financial and humanitarian support will also be extended to the population of Gaza," he added.
The Palestinian territories are currently split between the West Bank, controlled by President Mahmoud Abbas, and the Gaza Strip, controlled by the radical Islamist group, Hamas.
Sarkozy said the conference was designed to bolster the November 27 U.S.-sponsored Annapolis meeting, which gave a boost to "dialogue between the Palestinians and Israelis and outlined a political horizon."
U.S. Secretary of State Condoleezza Rice and Russian Foreign Minister Sergei Lavrov are also attending the conference.
Abbas and Israeli Prime Minister Ehud Olmert agreed in the U.S. to restart peace talks and to try to reach a deal on a Palestinian state by the end of 2008. The talks, which formally resumed on December 12, have been complicated by Israeli plans to build around 300 new homes near Jerusalem.
Peace efforts have also been complicated by deep divisions among the Palestinians. Hamas Islamists are opposed to peace talks with Israel and are refusing to recognize its right to exist.
On Monday Hamas called the Paris conference a "declaration of war."
"Financial aid in exchange for Israel's security is the suppression of the Palestinian resistance movement and an attempt to impose a European-American program of control over Palestinian leaders and force them to meet Israeli demands," a Hamas spokesman said.