Foreign ministers, divided over how deeply to invest in the unstable country's postwar reconstruction, set a contribution of 200 million euros ($234.5 million) from EU coffers for 2003-04.
In a joint statement, they called for a realistic timetable for handing over power to the Iraqi people and added a clause insisting on "a strong and vital role" -- an implicit plea to the United States to relinquish more of its control.
British Foreign Secretary Jack Straw told his colleagues that London would contribute an additional 375 million euros in new money for reconstruction over the next two full years.
He also told them an amended draft resolution would be circulated to Security Council members later Monday in an effort to win wider international support for peacekeeping and reconstruction in Iraq, diplomats said.
"The Iraqi people will watch very closely what happens in Madrid," Straw was quoted as saying.
No other minister announced an additional national contribution in the meeting. Some European states that backed the U.S.-led war to oust Saddam Hussein may add national funds to the joint donation, but critics of the war, led by France and Germany, seem unlikely to add much.
Several member states opposed giving more, arguing the EU, the world's biggest aid donor, is already stretched with priorities such as Afghanistan, Palestine and Liberia, which unlike Iraq do not have huge potential oil wealth.
"It's no secret that some member states also think those who broke Iraq should pay to fix it," one EU diplomat said.
Straw and Spanish Foreign Minister Ana Palacio told ministers the situation in Iraq was far better than reported in media accounts of violence and lawlessness, diplomats said.
They reeled off statistics about electricity supplies, banks and schools, while playing down the daily casualty toll.
German Foreign Minister Joschka Fischer said that if everything was going so well, the occupying powers should close what he called their "legitimacy gap," diplomats said.
Straw told reporters on arrival that he expected the EU to show greater generosity towards Iraq in the future.
"What I am looking for is that there should be further substantial contributions made for subsequent years. Whether a figure is put on that remains to be seen," he told reporters.
The World Bank, United Nations and International Monetary Fund have estimated jointly that $35.6 billion will be needed over the next four years to reactivate the Iraqi economy.
But even among countries that backed the war, there were signs of donor fatigue.
"As far as the Netherlands are concerned there will be no extras," Dutch Foreign Minister Jaap de Hoop Scheffer told reporters.
"We have already pledged quite a lot in emergency aid. ... [D]o not expect much because there is already much."
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