Donor countries meeting in Brussels recognized on Wednesday that the "Palestinian Authority (PA) is above the threshold of a functioning state" - an assessment immediately hailed as a "birth certificate" for a Palestinian state by PA premier Salam Fayyad.

In recent months, the World Bank, the United Nations and the International Monetary Fund (IMF) have certified that Fayyad's state-building plans are on track for completion in mid-2011.

"We can today conclude that the Palestinian Authority is above the threshold of a functioning state," Norwegian Foreign Minister Jonas Gahr Store said after chairing a meeting of the Ad Hoc Liason Committee, a panel of donor countries to the Palestinians.

"It amounts to a birth certificate for the reality of Palestinian statehood," Fayyad told reporters after the talks in Brussels.

The development took place against the backdrop of deadlocked peace negotiations between Palestinians and Israelis and running tensions in North Africa and the Middle East which have heightened Israeli security concerns.

A meeting of the Quartet - the panel of international mediators comprising the European Union, the United States, the United Nations and Russia - scheduled for Thursday in Berlin on the margins of NATO talks was called off, diplomats said.

Speculation has been mounting that the Palestinians would ask the United Nations General Assembly (UNGA) to recognize their statehood in September, if no progress in peace talks had been achieved by then.

But when asked, Fayyad refused to confirm that intention.

"We are not looking for another declaration of statehood, nor are we looking for a virtual state, what we are looking for, again, is a genuine, fully sovereign State of Palestine," including East Jerusalem which Israel captured in 1967, Fayyad said.

The Quartet's envoy, former British Prime Minister Tony Blair, reiterated the need for a "negotiated solution," warning that a unilateral Palestinian move for recognition at the UNGA would split the international community.

"Probably if we are hoping for complete unity in the international community on anything to do with this issue, it would be a rather misplaced hope," he quipped.

On the sidelines of the meeting, the EU signed an agreement granting duty-free access to Palestinian agricultural produce - provided that fruit and vegetables are sold above a set price.

EU foreign policy chief Catherine Ashton also said the bloc had earmarked 300 million euros ($433 million) in 2011 to further support Palestinian state-building.

The trade deal is expected to give a much-needed boost to the Palestinian economy and to its trade ties with the EU, which amounted only to 57 million euros in 2009, to which exports from Palestine contributed only 6 million euros.

Fayyad called it "a very important agreement," but stressed its application depended on Israel allowing goods out of the Palestinian territories, including the Gaza Strip over which it maintains a tight grip because it is ruled by the Islamist Hamas group.

But Irit Ben-Abba, an Israeli foreign ministry official who also was in Brussels, said "there are no restrictions ... for exports from Gaza to the international markets" since the Israeli government relaxed its embargo on the enclave in December.