Mahmoud Abbas, the Palestinian president, also spoke at the conference that marked Brown's first visit to the Middle East since becoming prime minister in June 2007.
"Israel is not concerned with the principles of the Annapolis conference, namely freezing settlement expansion," Abbas said.
Brown promised to offer additional financial support and police training to the Palestinian government and said that economic prosperity was key to peace, and urged an easing of Israeli travel restrictions in the West Bank that contribute to hindering commerce.
Israel response
Brown later visited Ehud Olmert, the Israeli prime minister, who admitted he had taken criticism on the settlements issue.
However, Olmert said: "I am absolutely confident, Mr Prime Minister, that this should not stand in the way of achieing an agreement between us and the Palestinians. We are closer then ever to an agreement.
"We have some disagreements which are very significant but I believe we can overcome [these]," by then end of this year.
Olmert was speaking at a joint press conference with Brown in Jerusalem.
Nour Odeh, Al Jazeera’s correspondent in Bethlehem, said Brown had earlier pledged $60m in aid this year in aid to the Palestine Authority.
Brown promised British support in developing housing, industrial parks and small businesses.
"We know that there are huge issues that are being discussed at the moment on security, issues about the future of different parts of the region," he said.
"But we also know the important contribution that the prospect of prosperity and economic development can make to this region".
However, Brown's pledge to provide more aid follows a list of similar promises. Less than half the money promised at last year's Paris Donors' conference has materialised.
Meanwhile, Odeh said: "At this point it doesn’t look like he'll be offering more than political support. As long as the [seperation] wall continues, and Israeli settlements are expanding, any prospect for peace diminishes by the minute and by the hour."
Brown is to move on to Jerusalem where he will Ehud Olmert, the Israeli prime minister, following a stop in Iraq where he will meet Nuri al-Maliki, the Iraqi prime minister.