UN chief Ban Ki-moon on Monday condemned Israeli settlement building and warned against "provocations" at Jerusalem's holy sites, calling for renewed peace talks to avoid further conflict with the Palestinians.

Ban was in the West Bank city of Ramallah where he met Palestinian prime minister Rami Hamdallah, a day after a Cairo conference at which international donors pledged $5.4 billion (4.3 billion euros) to rebuild the war-ravaged Gaza Strip.

"The amount that has been committed, pledged by the international community, is quite encouraging," Ban said at a joint news conference with Hamdallah.

The funds would go towards the "urgently needed" reconstruction of infrastructure and homes, he said of an "unprecedented" level of destruction in Gaza where nearly 2,200 Palestinians were killed in the 50-day war in July and August.

On the Israeli side, 73 people were killed, mostly soldiers.

But "while rebuilding is important, we must tackle the root causes of instability," Ban said.

"I once again strongly condemn the continued settlement activity by Israel," the UN chief said, echoing international condemnation of plans for new settler homes on occupied Palestinian territory.

The White House and European Union have slammed Israel's approval in September for 2,600 new settlement units in Israeli-annexed Arab east Jerusalem.

The settlements issue has caused the breakdown of numerous rounds of Israeli-Palestinian peace talks.

"I am also deeply concerned by repeated provocations at the holy sites in Jerusalem. These only inflame tensions and must stop," Ban said.

He spoke hours after Israeli occupation forces and Palestinian protesters clashed at the flashpoint Al-Aqsa mosque compound, the scene of the outbreak of the second Palestinian intifada or uprising.

The site is holy to both Jews and Muslims and is an underlying cause of Israeli-Palestinian tension, which has heightened in Jerusalem since the Gaza conflict.

Ban urged the two sides to revive a stagnant peace process that collapsed in April despite intense US efforts.

"I urge Palestinians to show courage and continue engaging in the... peace process... (and) Israelis to do the same," Ban said.

"Time is not on the side of peace.

"We need to act immediately to prevent a deepening of an already unsustainable status quo... this is the only way to avoid yet another tragic conflict in the future," he said.

The Israeli war on Gaza last summer displaced more than a quarter of its population of 1.7 million, and left 100,000 people homeless.

The $5.4 billion in aid pledged in Cairo on Sunday includes $1 billion from Qatar, $212 million from the US and 450 million euros from the EU.

The provision of aid will be overseen jointly by the UN and the West Bank-based Palestinian Authority, amid concerns that unchecked imports could fall into the hands of militants, including those of Hamas, against which Israel waged its military operation.

Hamas and rivals Fatah, which dominates the PA, signed a unity deal in April under which a consensus government was sworn in.

Its first full cabinet meeting was in Gaza on Thursday, in a show of unity ahead of the Cairo conference.

"The Palestinian government of national consensus will play a lead role in... supervising Gaza's reconstruction with the support of the international community," Ban said.

"We'd like to see the unity government succeed in assuming its rightful responsibilities and functions in Gaza."

The unity government is to take over administrative control from Hamas, the de facto power in Gaza since 2006.

Hamdallah stressed the need to "entrench national reconciliation", but also called on Israel to ease its eight-year blockade on Gaza to allow in construction materials.

"These programmes will fail to achieve their goals if the Israeli siege on Gaza is not lifted immediately," he warned.

Ban said he was confident that if properly implemented, the aid "can allow for the large-scale reconstruction urgently needed in Gaza".

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