The World Bank on Wednesday commended the Palestinian Authority for its institution-building efforts, but voiced concern over limited economic growth in Palestinian-run areas in both Gaza and the West Bank.

"Rebuilding the Palestinian economy's productive capacity is a priority,” Mariam J. Sherman, World Bank Country Director for the West Bank and Gaza told donors, in presenting her report on the matter.

"While we commend the solid performance of Palestinian institutions, we are concerned about the prospect for continued economic growth," said Sherman.

Sherman called on Israel, the PA and the donor community to work toward a more sustainable economic system in Palestinian territories, but blamed "the closure regime" as "the most substantial obstacle to Palestinian economic viability.”

The report was presented to the Ad Hoc Liaison Committee (AHLC), a forum of donors to the Palestinian Authority (PA), set to meet in Brussels on April 13.

The authors of the report examined the performance of existing Palestinian institutions and well as the formation of new ones, stating that “if the PA maintains its performance in institution-building and delivery of public services, it is well-positioned for the establishment of a state at any point in the near future.”

The PA institutions faired well in multiple areas, with the report praising the improvement in their financial institutions, noting that both the education and health systems in the West Bank and Gaza are highly developed.

Although the report stated that “significant reforms still lie ahead for the PA”, institutions in both the Hamas-run strip and Fatah's West Bank compared favorably to both countries in the region as well as throughout the world.

Despite this marked progress in institution building, the World Bank's assessment for the sustainability of economic growth in the West Bank and Gaza is considerably less optimistic. According to the report, the 9.3 percent growth for 2010 “reflects recovery from the very low base reached during the second intifada, is still mainly confined to the non-tradable sector and is primarily donor-driven.”

The report cited foreign aid as the main reason that many Palestinians, particularly in Gaza, do not fall below the poverty line, with what the report calls a "staggering" 71 percent of the population having received some form of social assistance in 2009.

In Gaza, 37.4 percent of its population is unemployed.

The report said that both Gaza and the West Bank are in need of a "vibrant" private sector if it is to pull itself out of this economic slump toward sustainability, condemning Israel for preventing this development.

The report argued that that the emergence of such a private sector is unlikely “while Israeli restrictions on access to natural resources and markets remain in place, and as long as investors are deterred by the increased cost of business associated with the closure regime.”

In spite of this obstacle to economic progress, the World Bank report urged the PA to continue working to create a viable infrastructure to enable “private sector growth when the Palestinian state is established”. The report called on the Palestinian leadership to adopt “a coherent trade strategy” and create “an appropriate border management and customs system.”