Israel's 5-year blockade of the Gaza Strip has compromised the two-state solution in ways which will be difficult to reverse, an Israeli legal rights group has warned.

"Gaza’s connections with Israel and the West Bank, vital for its economy and the welfare of its residents, are still subject to sweeping restrictions on movement," Gisha said in its latest report.

People in Gaza are permitted to export goods abroad that transit through Israel and the West Bank but are prevented from selling the same goods in Israel and the West Bank, where both demand and profitability are much higher.

The rate of exports from Gaza is less than 2 percent of pre-June 2007 levels, the report said. Prior to the blockade, 85 percent of goods exported from Gaza were sold in Israel and the West Bank.

Export ban not related to security

Over the last five years, less than a thousand trucks of produce have left the Gaza Strip, destined for Europe, Saudi Arabia and Jordan.

All these trucks have passed through Israel after undergoing security checks by Israeli officials, demonstrating there is not a security risk to selling the goods in Israel.

In March, Israel allowed 13 truckloads of date bars to be exported from Gaza to the West Bank, via Israel, again revealing that the policy of banning exports to the West Bank is not related to security.

"The export ban has paralyzed the industrial sector in the Gaza Strip. Some 83 percent of factories in the Strip are shut down or are operating at half their capacity or less," Gisha said.

"(A) small economy such as that of the Gaza Strip, which lacks natural resources and has next to no purchasing power, has no hope of achieving stable and sustainable economic development without significant export," it added.

Meanwhile, the export ban has created a new class of businessmen who benefit from the tunnel economy, smuggling goods under the border from Egypt. Controlled and taxed by Hamas, experts say the tunnel trade has strengthened the party.

While Egypt's reopening of the Rafah crossing eased travel abroad for some Gaza residents, the terminal is not equipped for commercial traffic in either direction.

Israel still heavily restricts travel from Gaza to Israel or the West Bank, which stands at less than 1 percent of pre-2000 levels.

Separation policy divides West Bank, Gaza

Since June 2010, when Israel changed aspects of its closure policy, Israeli officials have said ongoing restrictions form part of a "policy of separation."

Israel has offered little explanation of the policy and it is not clear what government branch formed it.

An Israeli document obtained by Gisha states that "in 2006, a decision was made to introduce a policy of separation between the Judea and Samaria Area (West Bank) and the Gaza Strip in light of Hamas’ rise to power in the Gaza Strip. The policy currently in effect is aimed at reducing travel between the areas."

Gisha, which represents individuals and organizations in Israeli administrative proceedings and courts, has outlined the effects of the policy in practice.

It found that Israel grants permission for residents of Gaza to travel to mourn the death of a first-degree relative - for example a child, but not a grandchild.

Senior merchants are granted permits -- but not owners of medium or small businesses. A small number of Christians are allowed to travel to holy sites in Jerusalem and the West Bank for religious worship; Muslims are not. Soccer players can travel for training and tournaments; students are forbidden to travel.

"Israel's separation policy is blocking economic recovery in Gaza and deepening what threatens to be an irreversible split between the two parts of the Palestinian territory," Gisha director Sari Bashi says.