Israeli closures and restrictions are causing lasting damage to the competitiveness of the Palestinian economy, the World Bank said Tuesday.

Israeli-imposed economic restrictions continue to constrain sustainable economic growth, a situation that is unlikely to change without political progress, according to the World Bank's latest report.

The economic monitoring report warns that the Palestinian economy is in danger of losing its capacity in the global market.

Since the late 1990s, the productivity of the agriculture sector has halved and the manufacturing sector has largely stagnated, the report found.

Exports dropped to 7 percent in 2011, one of the lowest rates in the world. Exports are concentrated in low value-added goods and services and mostly sold to Israel, according to the World Bank.

Water and transport infrastructure is deteriorating, damaging economic productivity, particularly in Gaza which has been under an Israeli blockade since 2007.

Meanwhile, "alarmingly high" levels of unemployment mean many Palestinians do not have the chance to develop on-the-job skills, the report notes. Increased employment in the public sector has provided short-term relief but is unsustainable and does not prepare workers for private sector roles.

"The worrisome implication of these phenomena is that the long term employability prospects for the Palestinian labor force are being eroded. In addition to the economic implications, protracted unemployment, especially among youth, tends to weaken social cohesion," the report says.

"Continued financial support by the donor community, and increased reform efforts by the PA to manage the current fiscal challenges must remain a high priority," said Mariam Sherman, World Bank country director for the West Bank and Gaza, in a statement.

"However, much bolder efforts to create the basis for a viable economy need to be made to prevent the continued deterioration that will have lasting and costly implications for economic competitiveness and social cohesion," Sherman added.