'Suspend the project'
The Unesco report has called on Israel to suspend the project and draw up a new work plan in consultation with Jordanian authorities and the Waqf, a body that oversees Muslim holy sites in Jerusalem.
Israeli archaeologists began excavations at the site on February 7 to salvage artefacts before beginning construction of a walkway leading up to the complex where the two biblical Jewish Temples once stood.
"Israel should be asked to stop immediately the archaeological excavations given that the excavations that have been undertaken were deemed to be sufficient"
"The government of Israel should be asked to stop immediately the archaeological excavations given that the excavations that have been undertaken were deemed to be sufficient for the purpose of assessing the structural conditions of the pathway," the Unesco report states, according to officials.
If excavations proceed, Unesco concluded, they should be conducted under international supervision.
Mark Regev, an Israeli foreign ministry spokesman, said the Unesco report "shows clearly that the Israeli restoration work is totally benign".
Regev said Israeli officials had started a process to "re-engage with the relevant parties in an effort to allay concerns," but did not say that Israel would call off the excavations.
Unesco officials did not immediately comment.
Israel says the dig will do no harm to the Dome of the Rock and al-Aqsa mosques on the compound, which overlooks Judaism's Western Wall.
Israel's antiquities authority has placed internet cameras at the site and Ehud Olmert, the Israeli prime minister, has brushed aside fears the dig would harm the Muslim holy site.
The excavations led to violent Muslim protests in East Jerusalem, which includes the walled Old City where the compound is located.
Israel annexed East Jerusalem in the 1967 war, a move not recognised internationally.
It considers all of Jerusalem its "eternal and indivisible capital".
Palestinians want East Jerusalem to be the capital of the state they aspire to establish in the occupied West Bank and in the Gaza Strip.