The United States will contribute $400 million in development aid to the Palestinian territories and work with Israel to loosen its embargo on Gaza, President Barack Obama said Wednesday.

Obama's announcement came after White House talks with Palestinian Authority President Mahmoud Abbas. The money will be used to build housing, schools, water and health care systems in both the Palestinian Authority-controlled West Bank and Gaza, which is ruled by the Palestinian Islamic movement Hamas.

Obama called the situation in Gaza "unsustainable," and said the United States would work with its European allies, Egypt and Israel to find a "new conceptual framework" for the Israeli blockade of Gaza.

"We agree Israelis have right to prevent arms from coming into Gaza," Obama said. But he said "new mechanisms" were needed to allow more goods to reach the territory - and he repeated that the long-term solution was a permanent deal creating "a Palestinian state side-by-side with an Israel that is secure."