The Palestinian economy could expand by more than a third if Israel lifted restrictions on about 60 percent of the West Bank it controls, the World Bank said in a report published Tuesday.

"More than half the land in the West Bank, much of it agricultural and resource rich, is inaccessible to Palestinians," said the report.

"The first comprehensive study of the potential impact of this 'restricted land' ... sets the current loss to the Palestinian economy at about $3.4 billion (2.5 billion euros)," it added.

If businesses and farms were allowed to develop in the territory, "this would add as much as 35 percent to the Palestinian GDP", it estimated.

The increased economic activity would also "reduce the need for donor support" that the Palestinian Authority heavily relies on at present, it said.

The World Bank's West Bank and Gaza director Mariam Sherman warned that "without the ability to utilize the potential of Area C, the economic space will remain fragmented and stunted."

Area C is the more than 60 percent of the occupied West Bank under full control of the Israeli army.

The World Bank report came about a fortnight after the Middle East Quartet published a plan to revive the ailing Palestinian economy, in an effort to support peace negotiations between Israel and the Palestinians.

The three-year "Palestinian Economic Initiative" would focus on private sector growth. It identified eight key sectors targeted for development, including construction and building materials, agriculture, energy and water, and tourism.

The International Monetary Fund has estimated that the Palestinian GDP growth would slow from 11 percent in 2011 and 5.9 percent in 2012 to 4.5 percent by the end of this year.

International institutions and the Palestinians themselves have stressed that, even with continued donations, the economy will not grow. They have emphasised the importance of private sector development, which requires Israel to ease restrictions.