The World Bank gave a strong endorsement on Thursday to Palestinian efforts to set up an independent state, saying core Palestinian institutions compared favourably with those in established nations.

The World Bank report followed a similar vote of confidence this week from the International Monetary Fund, with both Washington-based bodies praising the Palestinian Authority for creating the structures needed to maintain a sovereign state.

"The PA has continued to strengthen its institutions delivering public services and promoting reforms that many existing states struggle with," the World Bank report said.

It repeated comments made in a 2010 survey, saying the PA was "well-positioned for the establishment of a state at any point in the near future", adding that its achievements came against the backdrop of "stringent Israeli restrictions".

Palestinian Prime Minister Salam Fayyad, a former World Bank economist, launched a two-year plan in 2009 to construct the framework of a state by mid-2011 and says he will meet his goal.

However, direct peace talks with Israel aimed at ending their decades-old conflict and enabling the foundation of a Palestinian nation broke down last September in a dispute over continued Jewish settlement building in the West Bank.

Efforts to revive the negotiations have failed and the Palestinians are focusing attention on getting U.N. recognition of a Palestinian state on all of the West Bank, Gaza Strip and East Jerusalem -- lands seized by Israel in a 1967 war.

This bid is being complicated by the fact that the Western-backed PA only rules in the West Bank, with nearby Gaza under the control of the Islamist group Hamas.

STRONG GROWTH HARD TO MAINTAIN

A relative calm has settled over the Palestinian Territories over the past two years, providing an improved economic environment, with growth of 9.3 percent last year.

However, the World Bank said this strong performance did not appear to be sustainable because it was mainly driven by donor aid. It said unemployment of 16.9 percent in the West Bank and 37.4 percent in Gaza was worryingly high.

"Ultimately, sustainable economic growth ... can only be underpinned by a vibrant private sector. The latter will not rebound significantly while Israeli restrictions on access to natural resources and markets remain in place," it said.

Israel says it has lifted hundreds of West Bank checkpoints in recent years to help the local economy and eased a land blockade of Gaza in 2010 despite continued Hamas rocket strikes.

The World Bank, which offers advice and resources to developing nations, listed some Palestinian successes, notably in health and education, but said poverty was a problem.

The poverty rate in the West Bank fell to 16 percent in 2009 from 23 percent in 2004, while the rate in Gaza increased to 33 percent from 30 percent, with 71 percent of Gazans relying on some form of social assistance.

"The (PA) faces challenges familiar to many an existing state and like these states, must navigate and reconcile varying stakeholders in both the West Bank and Gaza," the report said.

"The PA's performance to date, however, bodes well for the future," it added.