The EU on Tuesday released 252.5 million euros ($274 million) in aid to support the Palestinian Authority's health and education programmes and offer services to Palestinian refugees in the Middle East.
The European Commission, the executive of the 28-nation bloc, released the aid as it tries to help Palestinian institutions become more accountable and democratic to prepare them for running a future Palestinian state.
"Today the European Commission has approved a 252.5 million euro assistance package for Palestine," the commission said, adding it was the first part of its 2016 aid package.
"Through this package, the EU supports the daily lives of Palestinians in the fields of education and health, protecting the poorest families," EU foreign policy chief Federica Mogherini said, adding Palestinian refugees in the region would be given access to essential services.
"But these steps are not enough; Palestinian institutions must continue to grow stronger, become more transparent, more accountable and more democratic," Mogherini said in a statement.
"Viable and inclusive institutions, based on respect for the rule of law and human rights, are crucial in view of the establishment of an independent and sovereign Palestinian state."
The European Union has long supported a two-state solution to the decades-old Palestinian conflict, with a secure Israel existing alongside a viable Palestinian state.
But US-brokered peace talks collapsed in April 2014 and the prospects of fresh dialogue have appeared increasingly remote.
A wave of violence which erupted on October 1 has claimed the lives of 178 Palestinians, 28 Israelis, as well as an American, a Sudanese and an Eritrean, according to an AFP toll.