Prime Minister Tony Blair and President Pervez Musharraf agreed restoring order in Afghanistan was crucial.
But Musharraf also told reporters that resolving the Palestinian-Israeli dispute was at the "core" of the fight against terror, adding Blair "agrees totally with me," the BBC reported.
"For the Middle East in particular -- but also worldwide -- where there is injustice we've got to be dealing with it," Blair said. "That's why it's important that we deal with the Palestinian issue in a proper way."
Blair said $960 million from Britain would support Musharraf's educational reforms, which seek to counter the influence of hardline Islamic religious schools, seen as a breeding ground for militancy.
Musharraf said additional money would boost the number of jobs in Pakistan, thereby reducing the number of people turning to violent extremism.