A new U.N. report warns of an unprecedented decline in the Palestinian economy, saying poor Palestinians have been hit hardest of all. VOA's Jim Teeple has details from our Jerusalem bureau.

The report from the U.N. Relief and Works Agency for Palestinian Refugees, known as UNRWA, says there has been a 64 percent increase in the number of Palestinians living in what the U.N. describes as deep poverty or on about $2 a day since 2005. According to the report more than one million Palestinians live in deep poverty.

The report also says there has been an overall household decline in income of more than $300 million in the past year, accelerating a trend which began in 2000 when the second Palestinian intifada began. About 30 percent of Palestinians are unemployed - a figure that has also more than doubled since 2000.

A U.S. economist who compiled the report for UNRWA, Salem Ajluni, says the rise in so-called deep poverty and a sharp drop in manufacturing, have been especially noticeable in the Gaza Strip.

"When you reduce household incomes from the public sector alone by about $330 million you are going to get an increase in deep poverty, there is a result there. It is always the case that there is a disproportionate impact on the Gazan economy," he said. "If the public sector takes a hit they get it magnified there. If there are movement restrictions it affects them more."

The U.N. report says the current economic crisis in the Palestinian territories has largely been induced by a cutoff of customs and tax revenue that Israel turns over to the Palestinian Authority, and a suspension of donor aid from the international community, especially from the United States and the European Union. The revenues were suspended months ago after the militant group Hamas took control of the Palestinian government and refused to modify its stance of not recognizing Israel, renouncing terrorism, or recognizing previous agreements between Israel and the Palestinian Authority.

About 165,000 Palestinians work for the Palestinian Authority, including more than 70,000 in the security forces. Since this year's financial crisis began they have been receiving on average about 40 percent of their wages, which Salem Ajluni says has further crippled the Palestinian economy.

"Basically it is a starved public sector, and that public sector and the reduction in income generated by the public sector has had these specific effects," he added.

Ajluni says the situation has been made worse because after Israelis, Palestinians have been the second-highest recipients of international aid in the world.

In a bid to end the crisis Palestinian factions have been holding marathon talks for weeks now to try and form a unity government not led by Hamas.

International donors, and Israel have said that donor aid, and the customs and tax revenues that Israel transfers to the Palestinians, will be resumed once a new government agrees to recognize Israel, renounce violence and respect previous agreements between Israel and the Palestinian Authority.