The funds will be channeled through the United Nations Relief and Works Agency for Palestinian refugees, which handles US and other aid for food, health, education and other areas, said US officials, who would not give an exact figure as the announcement will be made on a trip to the region next week.
A large chunk of the funding will go to Gaza, where an economic blockade has led to a worsening humanitarian crisis, culminating in hundreds of thousands of people crossing over into Egypt last month after the border was breached.
"The timing is right," said Samuel Witten, acting assistant secretary of state for the bureau of population, refugees and migration. "We are acutely aware of the challenges facing the people of Gaza and these contributions that we are making are a response to that," he told Reuters.
Witten declined to provide details of the amount the United States plans to announce, but made it clear the funds would be subject to strict US oversight regarding aid to the Palestinians.
The Islamist group Hamas, which Washington brands a terrorist organization, is in charge of the Gaza Strip and controls are in place to ensure no US funds are channelled directly to Hamas, he said.
Separately it has also put about $86 million over the last year into reforming security forces loyal to pro-Western President Mahmoud Abbas, whose Fatah movement dominates the West Bank.
Boost to Abbas
One goal of the new US humanitarian aid is to boost Abbas' standing among Palestinians.
Abbas and his government have complained loudly in recent weeks that not enough is being done by the international community to improve the situation on the ground and Israel is not easing military checkpoints and other restrictions as promised in peace talks brokered by the United States.
The United States hopes to get a peace treaty between Abbas and Israeli Prime Minister Ehud Olmert by the end of the Bush administration's term in January, 2009.
But talks so far between both sides have been going at a slow pace, with uncertainty over Gaza, security concerns and other thorny issues clouding the discussions that are ultimately aimed at creating a Palestinian state.
When Palestinian Prime Minister Salam Fayyad was in Washington last week he complained vociferously that Israel was not doing enough to improve the situation on the ground and that the pace of negotiations needed to quicken.
A senior US official, who spoke on condition that he was not named, said he hoped the new US aid for the West Bank and Gaza would help the Palestinian Authority.
"There is a battle here for public opinion," he said.
He said the United States was acutely aware of the problem of rockets being fired constantly from Gaza into Israeli territory, but he urged the Israelis to "lighten up a little" and start easing some restrictions.
While he understood Israeli arguments over retaining checkpoints to prevent attacks on the Jewish state, he said Fayyad was suggesting "improving" their functioning rather than removing them entirely.
"They need to work out a balance here," added the official.
US Secretary of State Condoleezza Rice will be in the region early next month to try and push along the peace talks and help find solutions to security problems on the ground.