The Washington-based body said the Western-backed PA, which governs in the occupied West Bank, had a solid track record of financial reforms enabling it to be less dependent on donor aid.

“(It) is now able to conduct the sound economic policies expected of a future well-functioning Palestinian state,” said the IMF staff report released this week.

The report said reforms in public-sector finance management had enabled the PA to control spending tightly, apply rigorous budget preparation and establish fiscal transparency and accountability in line with international standards.

This, along with a “prudent fiscal policy,” had contributed to a reduction in donor aid to $1.2 billion in 2010 from $1.8 billion in 2008, with a view to a further cut to below $1 billion this year, the report said.

The Palestinian economy grew 9.3 percent in 2010. To sustain this growth, the IMF urged Israel to ease limits on economic activity, mainly restrictions on trade between the West Bank and the Gaza Strip, which is run by Hamas.

The IMF report also urged Israel to ease the movement of Palestinians at Israeli checkpoints in the West Bank and to give the Palestinian private sector access to about 60 percent of West Bank land that is still occupied and controlled by Israel.