The Palestinian economy could expand by over a third if Israel were to lift its restrictions on about 60 percent of the West Bank that it controls, the World Bank said.
"More than half the land in the West Bank, much of it agricultural and resource rich, is inaccessible to Palestinians," the World Bank said in a report released on Tuesday.
"The first comprehensive study of the potential impact of this 'restricted land,' released by the World Bank today, sets the current loss to the Palestinian economy at about $3.4bn," it added.
If businesses and farms were allowed to develop in the territory, "this would add as much as 35 percent to the Palestinian GDP", it estimated.
Mariam Sherman, outgoing Country Director for the West Bank and Gaza, said the densely populated urban areas of the West Bank usually commanded the most attention.
The first comprehensive study of the potential impact of this 'restricted land' ... sets the current loss to the Palestinian economy at about $3.4bn.
"But unleashing the potential from that ‘restricted land’ - access to which is currently constrained by layers of restrictions - and allowing Palestinians to put these resources to work, would provide whole new areas of economic activity and set the economy on the path to sustainable growth."
The World Bank report comes about a fortnight after the Middle East Quartet published a plan to revive the ailing Palestinian economy, in an effort to support peace negotiations between Israel and the Palestinian Authority.
The three-year "Palestinian Economic Initiative" would focus on private sector growth. It identified eight key sectors targeted for development, including construction and building materials, agriculture, energy and water, and tourism.
The International Monetary Fund has estimated that the Palestinian GDP growth would slow from 11 percent in 2011 and 5.9 percent in 2012 to 4.5 percent by the end of this year.
Israeli and Palestinian negotiators held a new round of talks on Monday and agreed to pick up the tempo of their meetings, despite widespread scepticism over the possibility of reaching a deal.
The two sides resumed direct talks in late July, after three years of stalemate. Negotiators have said little in public about their meetings, but so far there have been no signs of progress.
Palestinian Authority President Mahmoud Abbas held a rare meeting with a group of Israeli parliamentarians on Monday, warning that this could be the last chance to reach a deal.
A senior Palestinian official told the Reuters news agency that the talks were intensifying, with the negotiating teams agreeing to meet more regularly, and for up to eight hours a day.
"As the Americans requested, we are upping the tempo of the discussions," the official said. "So far we have achieved nothing."
For the last two months, the two sides met once or twice a week, sometimes only for a couple of hours a time, leading foreign diplomats to question how the US goal of reaching a full accord by April could ever be met.