“In six areas where the UN is most engaged, government functions are now sufficient for a functioning government of a state,” said the report, which will be submitted to Palestinian donor nations meeting in Brussels on Wednesday.

But the report warned that it would be difficult for the PA to make any additional progress while the Israeli occupation continued and peace talks remained stalled.

“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.

In a statement accompanying the report, UN 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 key constraints to the existence and successful functioning of the institutions of a potential state of Palestine arise primarily from the persistence of the occupation and the unresolved issues in the Israeli-Palestinian conflict,” the report said.

“The institutional achievements of the Palestinian state-building agenda are approaching their limits within the political and physical space currently available.

“The current situation leaves Palestinians significantly constrained in terms of movement of people and goods and access to land,” the report said.

Given the impasse, Palestinian leaders aim to ask the UN 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.

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.

The UN 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.

Israel says the security controls are needed to maintain security in the West Bank.