Lack of momentum on peace with Israel as well as problems with funding have put Palestinian state-building progress at heightened risk, a UN report released here Monday said.

"The Palestinian state-building achievement is at increased risk, resulting from increased financial pressure on the Palestinian Authority (PA) and the continued absence of a credible political horizon for a negotiated solution, the United Nations report to the Ad Hoc Liaison Committee (AHLC) has concluded," said UN Spokesman Eduardo del Buey.

The UN Special Coordinator for the Middle East Peace Process ( UNSCO) prepared the report for the AHLC, the 15-member body that is the main policy-level coordination mechanism for development assistance to the Palestinian people. In the report from UNSCO, notable progress by Palestine in building a state was described.

"The report states that in the last six months the Palestinian Authority (PA) has continued to realize progress in a range of different areas, including, for example, the capacity of the security forces in the West Bank and in the provision of basic services, and addressing the needs of the most vulnerable members of Palestinian society," said Del Buey. "This deepening of institutional progress, the report observes, represents a further step forward in strengthening the institutions of a future Palestinian state."

However, Del Buey said that the PA faces an "immediate challenge" to honor financial commitments.

Del Buey said that the divisions within the Palestinian population, as well as violence and humanitarian problems in Gaza have made progress towards statehood more difficult.

"Similarly, the continued Palestinian divide and the unsustainable situation in Gaza, as highlighted once again in the recent upsurge of violence, represent fundamental challenges which must also be addressed," he said. "The report urges renewed momentum on the ground."