The possibility of a two-state solution has become endangered by the stalemate in the peace negotiations, Israel’s presence in the West Bank and the Palestinian Authority’s financial hardships, a United Nations-affiliated body said Thursday.

The Ad Hoc Liaison Committee, which coordinates international development assistance for the PA, said Ramallah’s recent state-building efforts would be for naught if not accompanied by an accord with Israel.

“While the PA has continued building the institutions of a future Palestinian state, the prolonged absence of a credible political horizon for a final-status agreement, ongoing conflict and the occupation represent ever more acute challenges to this progress,” the group said in a statement.

The report, prepared by UN Special Coordinator Robert Serry, focused particular attention on Area C, East Jerusalem and the Gaza Strip, the three areas where the PA is least able to extend its authority.

It argued that the West Bank’s Area C — under full Israeli military and administrative control under the Oslo Accords — is fundamental to the contiguity of the West Bank and the viability of a future Palestinian state.

Area C comprises about 60% of the West Bank: It is home to approximately 70,000 Palestinians, and the area in which the majority of the Jewish settlements are set up.

In the immediate term, the report said, the UN will continue to focus on planning and building permits for the Palestinians, as well as education and health facilities.

The leadership in Ramallah, however, has recently come under intense domestic pressure as unemployment rises, along with the cost of living. Earlier this month, thousands of Palestinians took to the streets to protest the fiscal crisis, calling for Palestinian Prime Minister Salam Fayyad’s ouster.

According to Serry, the PA’s usual sponsors will need to increase their contributions to ensure its fiscal viability.

A report by the World Bank on Wednesday predicted a $1.5 billion deficit for the PA this year.

“Donors do 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, according to Reuters.

The Ad Hoc Committee report also emphasized the need to ease movement and access restrictions to allow the Palestinian private sector to develop, generate economic growth and improve living conditions in the occupied Palestinian territory.

Palestinian Authority President Mahmoud Abbas on Wednesday announced his intention to resign and called on government factions to find a successor. Possible factors in the reported decision could include the growing rift between the Hamas-ruled Gaza and the PA-run West Bank, and the stalemate in the peace process with Israel.

Serry noted with appreciation Israel’s ongoing cooperation and the approval of another substantial package of UN reconstruction and sanitation works, including 449 housing units in Khan Younis and 6 UNRWA schools.

“In a tense and rapidly changing region, the vision of the two-state solution and the achievements of the Palestinian Authority are elements of stability and progress that must be maintained and realized in full without further delay,” the report read.

The AHLC is a 15-member committee that serves development assistance to the Palestinian people. Chaired by Norway, it is cosponsored by the EU and the US, with participation from the United Nations, the World Bank and the International Monetary Fund.