A World Bank report Monday accused Israel of squeezing the Palestinian economy out of billions of dollars by restricting access to Area C, which comprises some 61 percent of West Bank territory but is under full Israeli civil and security control.

The report says the Palestinian economy could add $3.4 billion in potential value a year, or 35 percent of the 2011 Gross Domestic Product, if Palestinians are allowed to develop the restricted area. The bank says the deficit of the Palestinian self-rule government, currently dependent on foreign aid, would drop by half, thereby reducing “the need for donor support, and reduce unemployment and poverty rates.”

The administrative areas of the West Bank were established by the 1994 Oslo peace accords. Area C was supposed to gradually be transferred to Palestinian control by 1998, but the transfer never took place.

The bank has repeatedly called on Israel to lift the restrictions, but Tuesday’s report is the first detailed attempt to quantify the losses.

“The densely populated urban areas of the West Bank usually command the most attention,” said Mariam Sherman, outgoing Country Director for the West Bank and Gaza, in a press release. “But unleashing the potential from that ‘restricted land,’ — access to which is currently constrained by layers of restrictions — and allowing Palestinians to put these resources to work, would provide whole new areas of economic activity and set the economy on the path to sustainable growth,” she said.

Access to Area C, Sherman said, would “go a long way to solving Palestinian economic problems” and without that added stimulus, “the alternative is bleak.”

The report called the Palestinian economy “unsustainable.”

“A vital economy is essential for citizen well-being, social stability and building confidence to underpin the challenging political negotiations,” the report said. “However, the Palestinian economy, which currently relies on donor financed consumption and suffers from ongoing stagnation of the private sector, is unsustainable.”

Israeli Foreign Ministry spokesman Yigal Palmor said most of the issues raised by the World Bank are to be settled in ongoing Israeli-Palestinian negotiations. Developing the Palestinian economy is in Israel’s strategic interest, he said in a statement.

Palmor said Israel has approved more than 300 humanitarian and economic projects in Area C in the past two years, and is reviewing projects proposed by the international community and the Palestinian Authority.

The Palestinians want to establish such a state in the West Bank, Gaza Strip and east Jerusalem, lands captured in 1967. A new round of peace talks began in late July, but expectations of reaching a deal are low.

Meanwhile, the old arrangements remain in place. Israel has sole control over 61 percent of the West Bank, or Area C, while the Palestinians administer the rest. Israeli retains overall control over security and crossings in and out of the West Bank.

All of the West Bank’s more than 300,000 Israeli settlers live in Area C, along with 6.6 percent of the territory’s Palestinians, or 180,000.

Most of the West Bank’s natural resources and open spaces, including the sparsely populated Jordan Valley, are located in Area C.

Yet less than 1 percent of Area C is open for Palestinian use, the bank said. 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 with due regard for Israel’s security,” the report said.