Palestinians demonstrate a against the high cost of living, in the West Bank city of Ramallah on Sept. 11, 2012. T (Majdi Mohammed/AP)

A fiscal crisis facing the Palestinian Authority will deepen unless foreign donors increase their support and Israel lifts a web of restrictions in the West Bank that hinder private investment needed to drive economic growth, the World Bank said in a report released Wednesday.

Issued ahead of a meeting of donor nations next week in New York, the report follows a recent wave of protests in the West Bank set off by increases in the price of fuel and other basic goods. The protests unsettled the Palestinian Authority, which governs parts of the West Bank and is struggling to pay salaries because of a shortfall in foreign aid, particularly from Arab states.

“Donors need to act urgently in the face of a serious fiscal crisis facing the PA in the short term,” Mariam Sherman, the World Bank’s country director for the West Bank and Gaza Strip, said in a statement.

The report says the crisis will probably worsen, with the Palestinian Authority facing a projected $1.5 billion deficit by the end of the year and with only $1.14 billion in donor pledges to close the gap.

The Palestinian Authority is largely dependent on foreign aid, most of it from the United States, the European Union and Arab countries.

Even with financial support, the report warns, sustainable Palestinian economic growth will be impeded unless Israel lifts physical and administrative restrictions in the 61 percent of the West Bank under its direct control, known as Area C.

The area, where Israeli settlements are located, holds most of the West Bank’s water, farmland, natural resources and land reserves, according to the report.

“The current system put in place by the government of Israel continues to stand in the way of potential private investment and it remains the major impediment preventing the Palestinian economy from reaching its full potential,” the report says.

Israeli officials have said the restrictions on Palestinian movement, building and access to land in Area C stem from security needs and measures to protect Israelis living in or traveling through the area.

The World Bank study asserts that although Israel has eased travel for Palestinians inside the West Bank in recent years, movement into and out of the territory has been “severely constrained” by a “multi-layered system of physical, institutional and administrative restrictions.”

“The continuous growth in the size of land that is allocated for [Israeli] settlement activity within the West Bank has fragmented the territory into smaller and more disconnected enclaves,” the report says, noting that Area C remains the only contiguous land in the West Bank, connecting 227 separate geographic areas under full or partial Palestinian Authority control.

“Economic cohesion is not achievable when the areas in which people have to operate and go about their business are crisscrossed by impediments,” Sherman said.

Mark Regev, a spokesman for Israeli Prime Minister Benjamin Netanyahu, said Israel has an interest in Palestinian economic development, which he suggested could help defuse political extremism and promote peace efforts. He said the Israeli authorities were prepared to approve projects in Area C on a case-by-case basis and in consultation with donors.

“We have no conceptual problem with developing Area C,” Regev said. “What we have objected to in the past is unilateral attempts by the Palestinians and Europeans to move ahead on all sorts of projects without consultation.”

An Israeli report prepared for the donors’ meeting said Israel had taken measures to ease the Palestinian economic crisis, including an advance transfer this month of about $63 million of tax revenue collected for the Palestinian Authority, a 40 percent increase in permits issued to Palestinians to work in Israel since February 2011, and the approval of 328 infrastructure projects in Area C since last year.