"It is absolutely clear that sustainable political and economic progress in the Middle East peace process require the Palestinian Authority and the Israeli government to work together," Brown, Britain's longest serving finance minister, wrote in the foreword.
"I retain my strong belief that political progress needs to be firmly supported by economic growth.
"By providing moderates with a material stake in their own future, we increase the cost of returning to conflict.
"This will help initiate a virtuous cycle of progress, with ever-increasing prosperity leading towards greater security for Palestinians and Israelis alike."
The report said a viable Palestinian state, living in peace and security with Israel, required the creation of a sustainable Palestinian economy.
It said the Palestinian economy had been "left behind", had barely changed in the last 40 years and the current economic outlook was "bleak".
Despite $10bn in international aid since the formation of the Palestinian Authority in 1993, Palestinians are getting poorer and 65 per cent now live below the poverty line, the report said.
Tony Blair, the envoy of the Middle East Quartet - the United Nations, the United States, the European Union and Russia - welcomed the report.
"This is a welcome and valuable analysis of the economic issues relating to the Middle East and will be a major contribution to the work we are carrying out," he said.