World Bank officials have said that the Palestinians could expand their struggling economy by a third and slash their budget deficit in half if Israel allowed them to use the West Bank territory that it controls.

The bank has repeatedly urged Israel to open up the 61 per cent of West Bank territory under its control known as Area C.

But the report released today marked the first detailed attempt to quantify Palestinian losses.

"Access to Area C will not cure all Palestinian economic problems but the alternative is bleak," the bank warned.

"Without the ability to conduct purposeful economic activity in Area C, the economic space of the West Bank will remain crowded and stunted."

Israeli Foreign Ministry spokesman Yigal Palmor claimed that most of the issues raised by the bank would be settled in the current Israeli-Palestinian negotiations.

The partition of the West Bank into spheres of control was part of interim deals that were supposed to have concluded with a final Israeli-Palestinian agreement on a Palestinian state by 1999.

Meanwhile, the old arrangements remained in place.

Israel retains overall control over security and all crossings to and from the West Bank.

All of the West Bank's more than 300,000 illegal Israeli settlers live in Area C and most of its natural resources are located there.

Yet less than 1 per cent of Area C is open for Palestinian use, the bank observed.

Most of the rest of the land is controlled by Israeli settlements or has been designated as nature reserves and closed military zones, making it off-limits to Palestinians.

"The key to Palestinian prosperity continues to lie in the removal of these restrictions," the bank emphasised.

The bank looked at direct benefits to agriculture, Dead Sea minerals exploitation, stone mining and quarrying, construction, tourism, telecommunications and cosmetics.

The potential additional output from these sectors would be at least £1.37 billion a year, or 23 per cent of the Palestinian gross domestic product in 2011, it said.