The World Bank says the Palestinian Authority is well positioned to establish an independent state, but that Israeli restrictions are stifling prospects for sustained economic growth.
In a report published Thursday, the bank praised Palestinians' progress in delivering public services and institution-building.
The report said also says the economies of the West Bank and Gaza Strip grew by 9.3 percent in 2010. But, it says Israeli restrictions on access to natural resources and markets are preventing the rebound of the Palestinian private sector, which is key to sustainable economic growth.
The World Bank also expressed concern about the staggering 37.4 percent unemployment rate in the Gaza Strip.
Peace talks with Israel have broken down due to Palestinian objections to the continued construction of Jewish settlements on land Palestinians want for a future state.
Palestinian officials are now planning to ask the United Nations to recognize the territories as an independent state.
In another development, the Israeli military says it carried out several airstrikes in Gaza overnight, targeting smuggling tunnels near the border with Egypt.
Palestinian medical sources say at least one person was wounded.
Some information for this report was provided by AP, AFP and Reuters.