By Mohammed Assadi
RAMALLAH, West Bank (Reuters) - The Palestinian Authority is ready to run an independent state but will struggle to make further institutional progress due to the restrictions of the Israeli occupation, the United Nations said on Tuesday.
The U.N. report followed equally upbeat assessments of the PA's nation-building achievements released over the past week by the World Bank and the International Monetary Fund.
The positive statements comes before a meeting in Brussels on Wednesday of aid donor countries which will review Palestinian Prime Minister Salam Fayyad's drive to construct the framework of a state by mid-2011.
"In six areas where the U.N. is most engaged, governmental functions are now sufficient for a functioning government of a state," said the report, entitled "Palestinian State-building: A Decisive Period."
It listed the six areas as rule of law and human rights; livelihoods; education and culture; health; social protection; and infrastructure and water.
However, it said the PA could not make significant further advances given the continued Israeli occupation of much of the West Bank and a breakdown in Middle East peace talks.
"Measures of occupation which stifle Palestinian life need to be fundamentally rolled back by more far reaching Israeli actions to match the progress of the state-building program," the report said.
Direct negotiations aimed at ending the decades-old conflict broke down last September following a dispute over continued Jewish settlement building on the West Bank.
Given the impasse, Palestinian leaders aim to ask the United Nations General Assembly in September for recognition of statehood on all of the territory Israel occupied in 1967, including Gaza -- over which the PA has no control.
In a statement accompanying the report, U.N. Middle East envoy, Robert Serry, said it was vital for Israelis and Palestinians to resume talks.
"I...stress the urgent need for Israeli-Palestinian peace negotiations on a two-state solution to resume, if the state building and political tracks are to come together by September," he said.
The United Nations said deep political divisions between the PA and the Islamist group Hamas, which runs Gaza, added another complication to the drive to Palestinian statehood.
However, the report said the main constraint to the creation and successful running of a Palestinian nation remained the Israeli occupation. Israel still controlled 62 percent of the West Bank, including major road links, it said.
"The current situation leaves Palestinians significantly constrained in terms of movement of people and goods and access to land," the report said.
Israel says the security controls are needed to maintain security in the West Bank, which is home to around 2.5 million Palestinians and 192,000 Israeli settlers.