The long-term economic prospects for the Palestinian territories are getting worse, with the Israeli occupation being the reason for ongoing economic hardships, the United Nations said on Wednesday, warning of "deceptive" growth figures that only reflect reconstruction efforts following Israel's 2008/9 assault on the Gaza Strip.

The economy of the Occupied Palestinian Territory (OPT) grew by 9.9 and 9.8 per cent in 2011 and 2010, respectively, the United Nations Conference on Trade and Development (UNCTAD) stated in a report on the territory's economy released this week.

But while this may suggest a booming economy, UNCTAD said the growth was mainly driven by reconstruction efforts aimed at rebuilding Gaza following the devastation caused by Israel's military assault in December 2008 and January 2009, in which more than 1400 Palestinians – mostly civilians – were killed.

Gaza's local economy grew by 23 per cent last year, while that of the West Bank grew by 5.2 per cent. But real gross domestic product (GDP) per capita in Gaza was still 10 per cent lower than its 2005 level, the report notes.

"The growth achieved in 2011 and through early 2012 is not sustainable," UNCTAD said in a report summary.

"It reflects the low base at which the economy was functioning at the end of 2010 following the damage caused by the Israeli military campaign in Gaza. The low base also was a result of the economic damage caused by Israeli closures in the West Bank," it added.

Much of the growth was aid-driven, the report adds, noting that economic expansion in the past year was accompanied by a decline in real wages and productivity, with every second Palestinian classified as 'poor.'

Unemployment persisted at 26 per cent, alongside "continued severe poverty and chronic food insecurity," both of which are most severe in the besieged Gaza Strip.

The poverty rate in East Jerusalem is estimated at 78 per cent, higher than the rates in the West Bank and Gaza.

The report outlines key obstacles to Palestinian development, most prominent of which is the ongoing economic siege on Gaza. But barriers to the movement of people and goods in the West Bank are also on the rise, with the number of such barriers up from 500 in 2010 to 523 in 2011, the report says.

"Demolitions of Palestinian homes and infrastructure increased in 2011, and the expansion of Israeli settlements, particularly in the areas surrounding East Jerusalem and Bethlehem, worsened the existing physical fragmentation between various Palestinian 'Bantustans,' or disconnected enclaves," UNCTAD explained.

The report contends that economic problems are directly related to the Israeli occupation, rather than due to the Palestinian Authority (PA)'s economic policies.

"Occupation has almost eliminated all domestic and external marketing and investment opportunities, and has eroded the land and natural resources available to Palestinians for economically productive activities," the agency continues.

Public and private investment is restricted in 63 per cent of West Bank land – a part known as Area C, which remains under Israeli control – while Gaza is still under economic blockade. 

Such circumstances, the report notes, make state-building "difficult to achieve."

Despite efforts by the PA to reduce spending and realise tax revenues, the Palestinian budget deficit continues. UNCTAD attributes the PA's fiscal weakness to a "lack of sovereignty," revenue "leakage" to Israel, and losses of output and revenue due to measures imposed by the Israeli occupation.

Revenue problems were made worse by a $520 million shortfall on the part of donors in 2011. The PA consequently accrued significant debt to the private sector. Arrears grew by $540 million, and debt to domestic banks reached $1.1 billion – a whopping 50 per cent of public revenue.

Palestinian agriculture is also described by UNCTAD as being "under siege," with years of Israeli occupation hobbling its productive and employment potential. 

The sector's contribution to Palestinian GDP shrank from 12 per cent in 1995 to 5.5 per cent in 2011, the report says. 

Meanwhile, only 35 per cent of the irrigable land in the OPT is actually irrigated, costing the economy some 110,000 jobs per year and 10 per cent of GDP. 

What's more, construction of Israel's 'separation barrier' has left 10 per cent of West Bank land trapped in the zone between the wall and the 1967 borders. 

As a result, thousands of Palestinian farmers find it difficult to access and cultivate their land in the zone. Doing so requires that they and their workers first acquire Israeli permits.

Fishing off the coast of Gaza is restricted beyond three nautical miles from the coast, only a fraction of the internationally-recognised limit of 20 miles, and has almost caused the complete collapse of the Palestinian fishing industry, the report says, going on to note that the number of local fishermen had declined by 66 per cent since 2000.

As a whole, the agricultural sector is operating at a quarter of its capacity, UNCTAD says, but points out that it could achieve a quick and sustainable recovery under the right circumstances.

The UN body recommends that donors and local authorities take measures aimed at compensating Palestinians for the adverse impact of the Israeli occupation, including the establishment of an agricultural development bank to share risk. It also suggests funding and guaranteeing investment in agricultural and water infrastructure.