WASHINGTON -- The world's top finance officials faced deep divisions Friday over how to reform foreign aid to better the lives of 1 billion people living in abject poverty.

Foreign aid, choking off terrorist financing and the state of the global economy are all on the agenda at Friday evening's dinner for the Group of Seven large industrial countries. Treasury Secretary Paul O'Neill and Federal Reserve Chairman Alan Greenspan are serving as hosts.

Those discussions will be followed today and Sunday with the annual spring meetings of the 183-nation International Monetary Fund and its sister lending agency, the World Bank.

Aid to the poor has received new urgency since the Sept. 11 terrorist attacks; The United States and other wealthy countries realize that the gulf between haves and have-nots has created a breeding ground for terrorism.

The global money talks are held against the backdrop of America's war on terrorism in Afghanistan and expanding hostilities in the Middle East. Additionally, the price of oil is soaring.

In an economic forecast prepared for the discussions, the IMF insisted that the global economy is pulling out of last year's slump, the worst in a decade, but IMF economists acknowledged that unforeseen shocks could derail the fledgling recovery.

Also looming are a worsening economic crisis in Argentina, South America's second largest economy, and the continued failure of Japan -- the world's second largest economy -- to mount a sustained recovery from its third recession in the past 10 years.

Demonstrators coming

Anti-globalization protesters were planning weekend demonstrations, prompting tightened security around the IMF meeting site three blocks from the White House.

World Bank President James Wolfensohn faulted the demonstrators for not realizing the great strides both agencies have made in recent years in reducing debt burdens of poor countries and overhauling outdated procedures. "We have come ... a long way," he told reporters Friday.

The United States was prodding its allies to create special police intelligence units to choke off financing to terrorist networks.

O'Neill predicted that discussions on another U.S. aim to switch more World Bank assistance to the poorest countries from loans, which have to be repaid, to outright grants would be "testy."