Israel limits impact of aid to Palestinians: World Bank

JERUSALEM (Reuters) - Billions of aid dollars pledged to the Palestinians to bolster peace talks with Israel are having a muted economic impact because of Israeli restrictions on travel and trade, the World Bank said on Sunday.

The lending agency told donor nations in a report that per capita income in the West Bank and the Gaza Strip in 2008 would be static, if not lower, despite the $7.7 billion in aid pledged to the Palestinians in December.

The World Bank said modest gains in economic growth in the occupied West Bank, where Western-backed President Mahmoud Abbas's government holds sway, were not sufficient to offset the "severe contraction" seen in Hamas-controlled Gaza.

Israel tightened its blockade of the Gaza Strip after the Islamist group's takeover in June from more secular Fatah forces loyal to Abbas.

"While the PA (Palestinian Authority) has moved ahead with its economic reforms, albeit slowly, there has been little progress on relaxing movement and access constraints," the bank said in the report, a copy of which was obtained by Reuters.

The World Bank said the impact of these restrictions, including hundreds of checkpoints and roadblocks in the West Bank, "cannot be overestimated".

Abbas responded to Gaza's takeover by sacking a Hamas-led unity government and by appointing his own administration in the West Bank.

Western aid, frozen after Hamas won control of the Palestinian Authority in January 2006 elections, has since resumed to Abbas's government to bolster final-status peace talks launched with Israel in November.

But those talks have shown little sign of progress and Israel has balked at removing major West Bank checkpoints and roadblocks, arguing that they are necessary to stop suicide bombers from reaching its cities. Palestinians call the obstacles collective punishment.