The West Bank economy could post its strongest performance in years in 2009, but only if Israel broadens recent efforts to ease restrictions on Palestinian trade and movement, the International Monetary Fund said Wednesday, offering a rare upbeat assessment after years of downturn.

The growth, projected to be as high as 7%, could further stabilize the West Bank, bolster US-led peace efforts and ease the financial burden on the international community. Donor countries spent some $1.8 billion in 2008 alone to cover the Palestinian government's deficit, in part to make up for a stagnant economy.

They include military checkpoints, a massive West Bank separation barrier, cumbersome inspections of Palestinian cargo at crossings into Israel and Jordan and the two-year closure of the Hamas-ruled Gaza Strip.

In recent weeks, Israel had eased restrictions, such as removing some major West Bank checkpoints, as part of Prime Minister Benjamin Netanyahu's offer of "economic peace" To the Palestinians.

Netanyahu initially had hoped to focus peace moves on improving the quality of life in the West Bank. Only under heavy US pressure has he reluctantly endorsed the concept of a demilitarized Palestinian state. The Palestinians say they won't settle for anything less than full statehood.

They're also skeptical about Israel's economic promises, noting that ventures worth hundreds of millions of dollars, including plans to build a new city in the West Bank and establish a second cell phone provider, remain on hold because Israel has stalled on key permits.

'Economic conditions to improve'
"The Israeli restrictions still pose obstacles to the improvement of the economy," said Palestinian Prime Minister Salam Fayyad, an internationally respected economist.

The IMF said Wednesday that economic conditions in the West Bank have started to improve. The report cited the easing of Israeli restrictions on internal trade in the West Bank, along with improved Palestinian security performance that has boosted investor confidence.

Israel would need to remove the remaining restrictions on trade and movement within the West Bank to raise real GDP growth by as much as 7% this year, which would be the first significant increase in Palestinians' standard of living since 2006, the IMF said.

For solid growth to be sustained beyond 2009, trade restrictions between the West Bank and Israel would also need to be eliminated, said the IMF representative in the Palestinian territories, Oussama Kanaan.

The Palestinian economy has largely sputtered since the outbreak of fighting in 2000. Under the current trade arrangements, Palestinian cargo is shipped "back-to-back" At Israeli crossing points, meaning it has to be unloaded from trucks, inspected and then loaded onto different vehicles to reach the final destination. The method drives up time and cost of shipping and makes deliveries unreliable.

Netanyahu announced this week that opening hours at the cargo crossing between the West Bank and Jordan would be extended. Other government officials said Israel is also trying to find ways to limit waiting times for trucks at crossings to no more than 45 minutes.

Netanyahu said he would also try to revive major economic projects, including two West Bank industrial parks sponsored by Germany and Japan. The projects have been stalled for years, and Israel acknowledged its shared the blame.

International Mideast envoy Tony Blair said he discussed some of the projects with Netanyahu on Monday, including the fate of the new cell phone provider, Wataniyeh. The company has waited for more than a year for Israel to assign the necessary frequency channels.

"I hope that by the end of this month, we'll have a satisfactory conclusion," Blair told The Associated Press on Tuesday.