WASHINGTON — Palestinian Authority Chairman Yasser Arafat left an international donors conference this week with a potentially powerful weapon against terrorists — more than $3 billion.

Americans, Israelis and the Palestinian leadership expressed hope that the money will boost Arafat's standing against Hamas and Islamic Jihad by helping his government bring the benefits of peace to the average citizen.

In fact, the U.S. State Department has begun to identify needed health care, education and social services in an effort to provide alternatives to Hamas institutions.

These moves come as the two militant Islamic groups have gained support during the past year in the West Bank and Gaza Strip at Arafat's expense.

"No peace stands a chance of lasting if it does not deliver real results to ordinary people," President Clinton told delegates at the opening of Monday's conference in Washington, D.C. "For too long, too many young people have turned to terrorism and old hatreds partly because they had nothing better to do. We must give them a different future to believe in."

Officials hope the influx of cash will create hundreds of thousands of jobs and reverse declines in the Palestinian economy. All major economic indicators in Gaza and the West Bank have dropped since the first Israeli-Palestinian accord was signed in 1993.

The pledges, promised by 43 countries for delivery within five years, could rise to almost $4 billion, U.S. officials said. The United States led the effort by nearly doubling its $500 million pledge made in 1993 after Israel and the Palestinians signed their Declaration of Principles.

The European Union pledged about $480 million, Japan $200 million, Norway $170 million, Saudi Arabia $100 million, Kuwait $80 million and Canada $30 million.

The international community pledged about $2.3 billion in 1993, but many countries did not deliver on all of their pledges.

Pending congressional approval, the United States would send $400 million to the Palestinians over five years in addition to its $100 million annual contribution. While support from Congress is not certain, the Clinton administration has not encountered strong opposition from Capitol Hill in preliminary consultations.

U.S. law prohibits American aid being given directly to the Palestinian Authority. Such assistance is disbursed to specific projects under the supervision of the U.S. government.

The White House plans to present a joint request for the Palestinian and Israeli aid tied to the Wye agreement signed in October.

Israeli and American officials are negotiating a package to pay more than $1 billion of the cost Israel said it will incur as a result of agreeing to the U.S. plan to turn over 13 percent more of the West Bank to Palestinian control. The money would be in addition to almost $3 billion the United States gives to Israel annually.

By presenting the aid packages together, Clinton administration officials said they hope to form a large coalition of support among Arab-American and American Jewish groups.

"If they will be less dependent on work in Israel and have more jobs in the Palestinian territory, hopefully it will create a better atmosphere in the peace process," said Zalman Shoval, Israel's ambassador to the United States.

"Of course the money needs to go to the places it should go," Shoval said after the conference.

While Israel planned to deliver a generally positive message of support to the delegates, the Israeli representative changed his speech at the last minute to defend the Jewish state against Palestinian verbal attacks.

Arafat used his address to blame Israel for the troubles in the Palestinian economy by pursuing a policy of "continued siege and frequent closure."

This week's conference came as the Palestinians faced new reports of widespread corruption and misallocation of international financial support. According to reports in European newspapers, donations for a low-income housing development in Gaza went instead to build luxury apartments for a general, a police chief and other Arafat "acolytes."

As a result, the international aid will go directly to projects that Arafat will not be able to influence.

American money for at least three years has gone to fund specific projects, mainly water and sewage, under the supervision of the U.S. Agency for International Development.

At a news conference after the one-day meeting, Arafat claimed the eastern portion of Jerusalem as the capital of a Palestinian state, which he hopes to declare next year.

"The Jerusalem issue remains the No. 1 issue, particularly during the permanent-status negotiations. When I say Jerusalem, I say holy Jerusalem; that's the part I mean," Arafat said.

The same day, however, he also referred to eastern Jerusalem as "occupied territory."