Saudi Arabia's King Abdullah has ordered the transfer of $1.5 billion to Lebanon's central bank to help it support an economy battered by an Israeli military offensive.
Saudi Arabian state tv station, Al-Ikhbariya, announced the offer of $1bn today but did not say whether the money was a loan or a grant. King Abdullah ordered a $500 million donation earlier yesterday to rebuild Lebanon.
Pressure on the Lebanese pound has risen during two weeks of Israeli air strikes that began after Lebanon's Hizbollah guerrillas captured two Israeli soldiers in a cross-border attack.
Israel's offensive has so far claimed almost 400 lives in Lebanon and destroyed infrastructure in the small Arab state.
Saudi Arabia has been a major political and economic sponsor of Lebanon since the 1975-1990 civil war was ended by an agreement made in the Saudi city of Taif.
A Western diplomat in Riyadh said the move was a sign of a tussle for influence in Lebanon between Iran, which backs Hizbollah, and Arab states led by Saudi Arabia.
"They are saying 'we all have to get in there before the Iranians do'. It's going to be a battle between Iranians propping up Hizbollah and Gulf Arabs propping up the Lebanese government," he said.
Saudi Arabia has played a key role in supporting the Lebanese pound since 1990, and billionaire Saudi Prince Alwaleed bin Talal is one of Lebanon's major foreign investors.
Late Prime Minister Rafik Hariri, who led reconstruction efforts, was also a Saudi national.
With fears mounting of a prolonged siege after Israel blockaded Lebanon from sea, air and land, Lebanese have been hoarding dollars, creating a shortage of banknotes.
Lebanon is a highly dollarised economy, with most shops as ready to accept the US currency as they are the Lebanese pound. People, hurt by a financial collapse during the civil war, are accustomed to holding hard currency.