Money at Gaza bank
Money at Gaza bankFlash 90

The World Bank warned of the "high risk" of renewed Israel-Palestinian conflict if the political and economic status quo between the two sides persists, in a report released Tuesday.

"The persistence of this situation could potentially lead to political and social unrest," it said. "In short, the status quo is not sustainable and downside risks of further conflict and social unrest are high." 

The percentage of the population living under the poverty line has reached 39 percent in Gaza and 16 percent in the Palestinian Authority (PA).

It said the "Palestinians are getting poorer on average for the third year in a row. Donor support has significantly declined in recent years," especially for the Hamas-run Gaza. 

Unemployment "remains high, particularly among Gaza's youth where it exceeds 60 percent, and 25 percent of Palestinians currently live in poverty," the World Bank said.

On the positive side, it said that "even without a final peace deal, there is substantial upside potential in the Palestinian economy." However, it blamed the current lack of potential not on the fact that terror groups Hamas and the Palestine Liberation Organization (PLO) run Gaza and the PA, but on Israeli and Egyptian "restrictions" on imports, exports, and travel designed to combat the terror threat. 

"The blockade on Gaza imposed by countries neighboring the Strip needs to be lifted in a way that protects legitimate security concerns of those countries," the World Bank said. 

"Israeli measures to let more goods leave Gaza are welcome, but more needs to be done: only six percent of what left Gaza prior
to the blockade is currently being allowed out."

The report also hailed the "very good progress" made by the PA in reducing its fiscal deficit. In March 2014, Ramallah announced it had reached a staggering $4.8 billion in debt, with a 2014 budgetary deficit of $1.5 billion. But while blaming Israel for the PA’s financial woes, PA chairman Mahmoud Abbas continues to spend six percent of the PA’s annual budget to pay $4.5 million a month to jailed terrorists and another $6.5 million to their families.

Despite this, the World Bank insists that unemployment in the PA in the first half of 2015 had eased to 16 percent, down from 18 percent in the same period of last year, thanks to the growing number of Palestinians working in Israel, which has reached 112,200.

"Even without a final peace deal, there is substantial upside potential in the Palestinian economy if existing agreements are implemented and restrictions lifted," the World Bank said. It forecast 2.9% growth in the PA and Gaza this year. 

AFP contributed to this report.