The Palestinian Authority is now largely ready to govern a state, the office of the United Nations special coordinator for the Middle East peace process said in a report on Tuesday.
"In six areas where the UN is most engaged, governmental 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 Palestinian Authority to make any additional progress while the Israeli occupation continued and peace talks remained stalled.
"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 Palestinian Authority (PA) has set itself a September 2011 deadline to be ready for statehood, with the hope of pressuring Israel and the international community to recognize a Palestinian state.
Peace talks between Israel and the Palestinians have been on hold since late 2010 over the issue of Jewish settlement in the West Bank and east Jerusalem.
But the Palestinians have said they will seek United Nations recognition for a unilateral declaration of statehood if the talks do not resume, and have touted their state-building efforts as evidence of their readiness for statehood.
In a statement accompanying the report, UN special coordinator for the Middle East peace process Robert Serry, praised Palestinian Authority president Mahmud Abbas and Prime Minister Salam Fayyad.