It singled out the Israeli-run Allenby Bridge crossing between the West Bank and Jordan, the main route for Palestinian exports to the Arab world.
Palestinian traders face a series of obstacles as they try to get their goods to market. Goods have to pass through Israeli roadblocks within the West Bank and through crossing points for export cargo, including the Allenby Bridge and terminals along Israel's separation barrier with the West Bank.
Many of the restrictions were imposed after the outbreak of Israeli-Palestinian fighting in 2000. Israel argues that it must move cautiously in easing restrictions, though critics say Israel could do far more.
The World Bank warned that the Palestinian economy, heavily reliant on trade, will not recover unless the restrictions are eased significantly.
"As long as the internal barriers exist, and imports and exports are forced to go through a system of back-to-back transfer, the Palestinian private sector is unlikely to prosper," the bank wrote. Under the back-to-back system, cargo is loaded from one truck to another at crossings to allow for stringent security checks.
Israeli government spokesman Mark Regev did not address the specifics of the report, but said Israel is committed to easing Palestinian movement and access. "Much depends on the security situation," he said.
However, the report noted that shipping goods from the West Bank to Israel is becoming increasingly difficult as Israel completes its separation barrier.
Israel says it is building the barrier, which is two-thirds complete, to keep out Palestinian attackers, including suicide bombers. Palestinians charge that the barrier's route was not determined by security needs, but by Israel's desire to annex West Bank land.
The bank said it takes almost two hours on average for a shipment to pass through barrier crossing points. Israel's Crossing Point Authority had set 30-60 minutes as a target, the bank said.
The bank predicted that these delays will grow significantly. The crossings now only handle a faction of the traffic between the West Bank and Israel, but this will change when Israel completes the barrier and all traders must use the crossings, the report said.
Improving operations at the Allenby Bridge will be crucial, the report said. Israel could obtain larger scanners, extend working hours and allow the use of containers, the bank said.
It proposed posting a Palestinian liaison official at the crossing and allowing cargo from trusted shippers to pass without extensive security checks.