The International Monetary Fund has given the Palestinian Authority a strong vote of confidence, saying it is capable of running a national economy just as it pushes for U.N. recognition.

The Washington-based body said the Western-backed PA, which governs in the occupied West Bank, had a solid track record of financial reforms enabling it to be less dependent on donor aid.

"(It) is now able to conduct the sound economic policies expected of a future well-functioning Palestinian state," said the IMF staff report released this week.

The latest direct peace talks aimed at ending the decades-old Israeli-Palestinian conflict broke down almost as soon as they began last September in a dispute over continued Jewish settlement building in the West Bank.

Efforts to revive the negotiations have so far failed and the Palestinians are focusing their efforts on building international support for recognition of a Palestinian state on all of the West Bank, Gaza Strip and East Jerusalem, lands Israel has occupied since 1967.

Palestinian leaders say they are considering a push for recognition of statehood at the United Nations General Assembly in September.

Palestinian Prime Minister Salam Fayyad embarked on a two-year plan in 2009 to construct the full institutional framework of a state by mid-2011, and the IMF endorsement is likely to encourage the PA in their U.N. drive.

The report said reforms in public-sector finance management had enabled the PA to control spending tightly, apply rigorous budget preparation and establish fiscal transparency and accountability in line with international standards.

This, along with a "prudent fiscal policy", had contributed to a reduction in donor aid to $1.2 billion in 2010 from $1.8 billion in 2008, with a view to a further cut to below $1 billion this year, the report said.

The Palestinian economy grew 9.3 percent in 2010. To sustain this growth, the IMF urged Israel to ease limits on economic activity, mainly restrictions on trade between the West Bank and the Gaza Strip, which is run by the Islamist group Hamas.

Hamas is hostile to Israel and strongly opposes the Palestinian Authority's peace strategy.

The IMF report also urged Israel to ease the movement of Palestinians at Israeli checkpoints in the West Bank and to give the Palestinian private sector access to about 60 percent of West Bank land that is still occupied and controlled by Israel.

Israel says it has facilitated Palestinian economic growth in recent years by lifting hundreds of West Bank restrictions.