In its finding, OCHA said Israeli measures such as the continued expansion of illegal Jewish settlements and construction of the barrier have severely reduced access to East Jerusalem and weakened the historic, religious, economic and cultural connection between Bethlehem and the holy city.
OCHA said that 66% of the Bethlehem governorate is designated Area C, where Israel retains security control and jurisdiction over building and planning.
"The barrier route in the Bethlehem governorate reaches 10km into the West Bank and if completed, it will cut off from the urban centre, approximately 64sq km of some of the most fertile cultivated land in the governorate as well as 21,000 Palestinians residing in villages west of the planned route," the report says.
There are approximately 175,000 Palestinians living in the Bethlehem governorate.
Since 1967, some 86,000 Israelis have been settled in the governorate and they live in 19 settlements and 16 settlement outposts.
The UN said that the Israeli measures had radically reduced the space available to the inhabitants of Bethlehem, and urged Israel that the steps it takes "must be in accordance with international law and not cause long-term detriment to the local Palestinian population."
The report said that steps can be taken to prevent further deterioration and restore some of the lost space to the governorate.
They include halting construction of the barrier inside the West Bank, opening closed military areas and nature reserves for sustainable Palestinian development, and freezing settlement construction, including related actions like "state land" declarations.
Allegra Pacheco, the OCHA deputy head, told Al Jazeera: "One of the recommendations that we are calling for as an immediate step is to lift the designation of such a large part of the Bethlehem governorate as a closed military zone and free up the land for Palestinian development.
"The steps we are recommending are reversible and regarding the West Bank barrier, only a part of it has been constructed, especially in the Bethlehem area, so this is an effort not to construct and to dismantle what is already there."