President Barack Obama said today the US would send $400m of aid to the Palestinian territories following 10 days of international focus on Gaza, which Israel has blockaded for more than three years.

The announcement came as Obama met the Palestinian president, Mahmoud Abbas, in Washington to discuss the progress of proximity talks between Israel and the Palestinians, as well as the dire situation in Gaza. Most US aid currently goes to the West Bank. The international community has largely focused on building up Abbas's authority over recent years, and Gaza, whose de facto Hamas government is not recognised by the US or the UK, has been marginalised.

But since Israel launched its disastrous assault on a flotilla of ships attempting to carry aid to Gaza, the humanitarian crisis in the tiny enclave has seized attention.

Obama described the situation in Gaza as "unsustainable", saying a better approach was needed and calling for a "new conceptual framework" for Israel's blockade. A White House statement said the new funds "represent a down payment on the United States' commitment to Palestinians in Gaza, who deserve a better life and expanded opportunities, and the chance to take part in building a viable, independent state of Palestine, together with those who live in the West Bank".

The money will go towards infrastructure projects in both Gaza and the West Bank, including $10m for the construction of new UN schools. It did not explain how the schools will be built while Israel maintains its embargo on construction materials entering Gaza, claiming they could be diverted to make weapons and build underground bunkers.

Earlier this week the UK government promised an extra £19m in aid. Israel today announced extra items it would allow into Gaza, including crisps, canned fruit, packaged hummus and shaving foam.

"They will send the first course. We are waiting for the main course," the Palestinian economy minister, Hassan Abu Libdeh, was quoted in the Israeli media as saying. "We are waiting for this unjust siege to end."

The Israeli Defence Force said it had allowed 98 truckloads of aid into Gaza yesterday – still less than a quarter of the amount that was permitted before the blockade. It claimed the slight easing was not related to the flotilla debacle or the subsequent pressure to relax the blockade.

Israel's prime minister, Binyamin Netanyahu, had planned to meet Obama in Washington ahead of Abbas's visit, but he was forced to cancel his visit and fly back to Israel to deal with the fallout of the flotilla operation.

Negotiations over the form of an inquiry into the operation are continuing. Israel is insisting on an internal investigation, with two international observers, but needs US approval. The US favours an impartial international inquiry.

Netanyahu said todaythat an inquiry would examine the presence of "extremist" elements on board the Mavi Marmara. Nine Turkish activists were killed in the course of the operation by naval commandos.

He has already said that the inquiry panel will not be permitted to cross-examine naval personnel.

• This article was amended on 10 June 2010. In the original the headline specified aid to Gaza only. This has been corrected.