"The number of households in Gaza below the consumption poverty line [has] continued to grow, reaching 51.8 per cent in 2007 despite significant amounts of emergency and humanitarian assistance," the report said.
Salem Ajluni, an economist with UNRWA and author of the report, told Al Jazeera that the situation in Gaza has worsened because of the long-running Israeli blockade.
"Gaza has historically been exposed to more difficult conditions than the West Bank for a number of reasons, but largely due to the fact that two thirds of the territory are refugees and dispossessed of their property.
"For more than six decades, of course, the situation in Gaza has been made much worse by the progressive tightening of the siege of the territory."
Adnan Abu Hasna, a UNRWA Spokesperson in Gaza, told Al Jazeera that the deterioration in the economic situation in the territory would result in "very bad things", and would be "reflected upon the population and stability in the Gaza Strip".
The UNRWA said that conditions in the occupied West Bank, however, have improved, where the poverty level in 2007 dropped by nearly five per cent from the previous year, to 19.1 per cent.
Unemployment concerns
The lifting of an international embargo on the Palestinian Authority (PA) in the West Bank was likely to have been the catalyst towards an improvement in conditions there, UNRWA said.
But although Israel pulled out of Gaza in 2005, it has maintained an economic and security blockade on the territory.
Israel says the restrictions are an attempt to restrict Hamas, which has control of Gaza, but human-rights groups say the blockade amounts to the collective punishment of Palestinian civilians.
The UNRWA report, which is drawn from figures provided by the Palestinian Central Bureau of Statistics (PCBS), said that "the real average unemployment rate in the occupied Palestinian territory [as a whole] remained amongst the highest in the world at 29.5 per cent," for 2007.
The unemployment rate in Gaza between July and December 2007 "reached an unprecedented high of 45.3 per cent" when adjusted to take into account the number of absentee workers in the last six months of 2007, the report says.
While the unemployment figure in the West Bank was lower, at 25.5 per cent for 2007, the rate is still about double the regional average, the report says.
Mustafa Hattab, a refugee from the Jalazoun refugee camp in the West Bank, emphasised the report's findings:
"What is a refugee to do to overcome this situation? Sell his children? Sell himself? We have lost everything - and all we've got left is a little bit of dignity and honour."
'Prospects bleak'
Those aged between 15 and 24 were the least likely to find employment in the Palestinian territories in 2007, UNRWA says.
"If you deprive young people of an economic future, you deprive them of hope and when hope vanishes, what is left?" Christopher Gunness, spokesman for UNRWA, said.
"How better to prevent despair and economic misery taking hold of a whole generation than to re-open Gaza's borders?"
In Gaza, jobs were created in the public sector, with many added through the job-creation schemes organised by Hamas administration, UNRWA said.
But a lack of investment in both the public and private sectors means that lasting employment opportunities will be threatened in the medium to long term, the report says.
"Israeli imposed movement restrictions in the occupied Palestinian territory, whose population is estimated to have grown by about one third since 1999, have resulted in considerable regression over the past eight years and remain the main barrier to economic recovery and development," it says.
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