Palestinians need $1.15 billion in 2009

RAMALLAH, West Bank (Reuters) - The Palestinian Authority urgently needs $1.15 billion (802 million pounds) to cover external recurrent financing requirements in 2009, the International Monetary Fund (IMF) said in a report released on Thursday.

The Western-backed government also needs $500 million for development projects, and at least $600 million for reconstruction and rehabilitation of Gaza after Israel's offensive last month, the IMF report said.

It added that should the funds not be paid immediately the cash-strapped authority would need to cut its cash expenditures and likely accumulate arrears, including on wages.

Palestinians hope to raise $2.8 billion at an international conference in Egypt on Monday aimed at rebuilding the Gaza Strip, controlled by the Islamist group Hamas, after the Israeli attack.

The IMF report also urged Israel to relax restrictions on movement of goods in the occupied West Bank, where Palestinian President Mahmoud Abbas's government holds sway, to enable recovery of trade and private investment.

Abbas favours a comprehensive peace treaty with Israel, to create a fully-fledged Palestinian state in the occupied West Bank and Gaza. Western nations have shunned Hamas for its refusal to recognise Israel and renounce violence.

"The restrictions in the West Bank have overall been tightened compared to 2007, despite some relaxation in late 2008," the report read.

Israel, the report added, had increased the isolation of Gaza Strip "markedly" since November 2008. Hamas, which won a Palestinian parliamentary election in 2006, took control of Gaza after ousting forces loyal to Abbas in 2007.

The report said Israeli restrictions on the passage of goods and people across Gaza's primary crossings remained tight even after the cessation of hostilities in mid-January.

"Slow progress in the peace process combined with continued (Israeli) restrictions on movement and access would further delay private sector recovery and impede public investment and reconstruction," the report said.

(Writing by Mohammed Assadi, editing by Dominic Evans)