Palestinian industry is "bound to fail" unless Israel lifts tight restrictions on trade and movement of people and goods in the Palestinian territories, a World Bank study said Monday. At the same time, Palestinian producers must move to higher value goods and look beyond Israel to new markets in Europe and the Arab world, said the study on the investment climate in the West Bank and Gaza. The Palestinian Authority made some progress in the past 10 years in creating an "enabling investment climate," but Hamas's rise to power last year put a stop to that, the study said. Israel has severely tightened travel and trade restrictions since the outbreak of the second Palestinian intifadah in 2000. Following Hamas's election victory last year and the capturing of an Israeli soldier by Hamas-linked militants, Israel further restricted the movement of goods and people out of Gaza. The Israeli measures have severed the flow of people and goods between the West Bank and Gaza. The West Bank is carved up by Israel's protective barrier and a network of checkpoints - measures which despite being criticized by some in Israel, have proven to significantly diminish the infiltration of suicide bombers and other terrorists into Israel. As a result of the protective barrier, Gaza producers have to export through Israel. Restoring free movement and access is a precondition for a viable Palestinian economy, the report said, recommending that Israel lift most of the restrictions imposed in recent years. "Without a concerted political effort to re-open markets and lower transaction costs, the Palestinian private sector is bound to fail," it said. Israeli Foreign Ministry spokesman Mark Regev said Israel had no desire to see a failed Palestinian economy, which he said "would not only be a tragedy for the Palestinians, but would provide impetus for greater regional instability." "Israel is fully aware of the economic conditions prevailing in the West Bank and Gaza, and together with the international community is doing everything possible to alleviate hardships," Regev said. The study noted that after 40 years of Israeli military occupation, the Palestinian economy remains largely underdeveloped - with small industrial enterprises accounting for just 12 percent of economic output. By contrast, the share of industry in neighboring Jordan is almost 30 percent. Under Israeli control, the Palestinian economy became increasingly dependent on Israel. Tens of thousands of Palestinians worked in Israel, raising income levels in the West Bank and Gaza. Palestinian businesses must change direction, the study said. "It is clear that while Israel will remain the largest trading partner for the time being, the Palestinian economy cannot rely on Israel indefinitely," the report said. "The domestic economy is small, so Palestinian producers must seek out new markets and enter them directly ... without Israeli intermediaries." Mazen Sinokrot, a prominent businessman in the West Bank, said he agreed that the Palestinians should seek new markets. However, he said it will be difficult as long as Israeli restrictions remain. He noted that it costs him an extra 5 percent to ship pickles and olives from the West Bank to Jordan because cargo has to be moved from one truck to another during border security checks. Israel does not allow the trucks to go through checkpoints unchecked because more than once Palestinians hid explosives or even terrorists inside innocent-looking vehicles. Palestinian negotiator Saeb Erekat said Sunday that he hopes to sign a new customs protocol with Israel soon, and that this could pave the way for exports from the Rafah crossing in Gaza's southern border with Egypt.