The majority of the financial aid will be channeled to the PLO through the United Nations, the European Union and the World Bank, a statement from the Swedish International Development Cooperation Agency (SIDA) said.
The agreement between SIDA and the PLO was signed as Palestinian President Mahmud Abbas visited Stockholm.
SIDA director general Maria Norrfalk said the aid would “help the Palestinian people in their struggles towards democracy and respect for human rights, to create jobs and support their work for peace.”
The money is in particular aimed at improving the education system and water and electricity supplies in the Palestinian territories.
The EU was the biggest aid donor to the Palestinian government until the radical Hamas movement came to power in March 2006.
The Quartet of Middle East mediators — the European Union, the United States, the United Nations and Russia — then suspended direct aid to the Palestinian Authority, demanding it recognize the state of Israel, past peace agreements and renounce violence.
In March 2007 a new government was formed bringing together Hamas and Fatah
in a unity coalition.
Abbas is currently on a European tour in a bid to convince the EU to resume its direct financial aid. He visited Stockholm on Thursday and held talks with Prime Minister Fredrik Reinfeldt.