Israel's occupation of the West Bank and Gaza deprives the Palestinian economy of almost £4.4bn a year, equivalent to about 85% of the nominal gross domestic product of Palestine, according to a report published in Ramallah .

As well as its detrimental effect on the Palestinian economy, the "occupation enterprise" allows the state of Israel and commercial firms to profit from Palestinian natural resources and tourist potential, the report said.

"No matter what the Palestinian people achieve by our own efforts, the occupation prevents us achieving our potential as a free people in our own country," said Hasan Abu Libdeh, economy minister in the Palestinian Authority, introducing the report on Thursday. "It should be clear to the international community that one reason for Israel's refusal to act in good faith as a partner for peace is the profits it makes as an occupying power."

Without the occupation, the Palestinian economy would be almost twice as large as it is and would be able to reduce its dependence on donor funding from the international community, according to the report.

Compiled jointly by the economy ministry and the independent thinktank Applied Research Institute – Jerusalem, the report was the first attempt to quantify the annual cost of the occupation to the Palestinian economy. "The total cost which we have been able to measure was $6.897bn in 2010, a staggering 84.9% of the total estimated Palestinian GDP," it said.

"The majority of these costs do not have any relationship with security concerns but, rather, come from the heavy restrictions imposed on the Palestinians in the access to their own natural resources, many of which are exploited by Israel itself, including water, minerals, salts, stones and land.".

The report broke down the $6.9bn figure into components, including the blockade on Gaza ($1.9bn), water restrictions ($1.9bn), natural resource restrictions ($1.8bn), import and export limits ($288m), restrictions on movement ($184m) and tourism to the Dead Sea ($143m).

The occupation "imposes a myriad of restrictions on the Palestinian economy. It prevents Palestinians from accessing much of their land and from exploiting most of their natural resources; it isolates Palestinians from global markets, and fragments their territory into small, badly connected 'cantons'," the report said.

The blockade of Gaza placed severe restrictions on imports and exports, on which the economy was highly dependent. Electricity and water production was unable to meet demand from industry and agriculture owing to damaged infrastructure and a shortage of parts and materials. Shelling had destroyed physical assets and infrastructure.

Restrictions on the import to both the West Bank and Gaza of goods deemed as "dual use", such as chemicals and fertilisers which Israel says could be used in the manufacture of weapons, had severely affected manufacturing and agriculture.

Limits on movement for both goods and labour within the West Bank through roadblocks, checkpoints and diversionswere a critical economic constraint. The report compared the distance of direct routes between West Bank towns and cities and the routes Palestinians are required to take. For example, the distance between the city of Nablus in the north of the West Bank and al-Jiftlik in the Jordan Valley was 36 miles (58km) by the most direct route, but the route Palestinians were forced to take was 107 miles (173km), adding significantly to the time and cost of each journey.

Restrictions on Palestinian access to the Dead Sea meant a loss in income from the extraction of minerals and salts, and from tourism, from which Israel benefited economically. Dead Sea beauty and skin care products, manufactured and marketed by Israeli companies, were worth $150m (£96m) a year, the report said.

Israeli businesses also profited from mining and quarrying in the West Bank. West Bank water resources were diverted to Israeli settlements, industry and agriculture. Israel took 10 times as much water from the three West Bank aquifers as the Palestinians, the report said.

Around 2.5m trees, including olive groves, had been uprooted since 1967 for settlements, infrastructure and the separation barrier. The report estimated the average annual production of a mature olive tree at 70kg, worth around $1.1 per kilogram.

Palestinian farmers had lost land or could no longer access it. "Six hundred and twenty thousand settlers [in the West Bank and East Jerusalem] cultivate 64,000 dunams of land. Four million Palestinians in the West Bank only cultivate 100,000 dunams," said Abu Libdeh. One dunam is around 1,000 square metres.

"As we prepare for statehood we want to build a sustainable and viable Palestine which is economically feasible, environmentally sound and socially legitimate," he said. "With Israeli restrictions on access, mobility and resource availability, a viable Palestine is impossible. To make Palestine sustainable, the occupation has to end."

Meanwhile, the Palestinian leadership said on Thursday there were "encouraging elements" in the statement issued by the Middle East Quartet last week in an attempt to get the parties to return to talks. "We call on Israel to announce its commitment to the principles and points of reference [the statement] identifies," said senior official Yasser Abed Rabbo, speaking after a meeting of the Palestine Liberation Organisation's executive committee.

"We consider the Quartet's reference to the obligations of the Palestinian and Israeli sides under the Road Map and the call to avoid provocative acts as a clear call for a definitive halt to settlement activity in all its forms, which is an encouraging sign."

The Israeli cabinet met on Tuesday to consider the statement but was unable to agree on a response.