The World Bank warned yesterday that the Palestinian economy is expected to contract for the first time in seven years.

The bank said the drop was not only the result of the recent war and a drop in foreign aid but also stemmed from continued Israeli and Egyptian restrictions on Palestinian trade.

The bank was reporting ahead of a meeting of donor nations to the Palestinians during a session of the UN general assembly next week.

The bleak forecast was a “wake-up call to everyone” that the status quo in Gaza cannot continue, said bank official Steen Lau Jorgensen.

The bank predicted the overall Palestinian economy would shrink by 4 per cent this year, ending a period of growth driven largely by international aid.

The downturn will be sharpest in Gaza, with a projected drop of 15 per cent.

Palestinian officials estimate $6 billion (£3.7bn) is needed for reconstruction.

The World Bank said restrictions on trade with Gaza must be ended if reconstruction is to work.

As part of their border blockade, Israel and Egypt bar virtually all exports from Gaza and Israel also severely restricts the influx of construction materials.

Mr Jorgensen said a unity government and an easing of restrictions were key to unlocking donor funds.

He added that under Israeli restrictions on construction materials it would take 18 years just to rebuild the destroyed homes and meet housing demand.

Even without the costs involved in rebuilding Gaza, the Palestinian Authority faces a funding shortfall of about $350 million (£216m) in 2014.