In a report ahead of an international donor conference next week, it said Thursday that foreign aid alone cannot rescue the stagnant Palestinian economy without practical changes and Israeli cooperation.
Gaza's sole electricity plant frequently runs out of fuel for its generators and rations power supplies to as little as four hours per day.
The Islamist Hamas movement seized power in Gaza in 2007 from the Ramallah-based Fatah organisation of Palestinian president Mahmud Abbas.
It imports diesel for the generators through Abbas's Palestinian Authority (PA), but the rivals are in constant dispute over payment, leading to constant shortages.
"During summer and winter peaks the scarce electricity supply is increasingly rationed to four hours during daytime," the report quotes the bank's West Bank and Gaza director Marina Wes as saying.
"Recently, this situation has become the norm leaving Gazans without electricity during most of the day. This has created a humanitarian crisis for Gaza’s two million people."
The shortages hit hospitals, clinics, water supply and other vital services, as well as household needs, she said.
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Protests broke out in January over the power cuts, which the Gaza health ministry warned could have "dangerous consequences" for patients.
"The PA needs to address reforms to ensure that payment obligations to electricity suppliers are met as this will encourage the needed private generation investment," the bank said.
"This is particularly important in Gaza to allow the construction of a high-voltage line from Israel to contribute to the relief of the energy crisis."
The strip was heavily battered in a July-August 2014 war between Israel and Hamas that killed more than 2,200 Palestinians and 73 people on the Israeli side.
Its problems are exacerbated by a decade-old Israeli blockade.
"Easing of Israeli restrictions on external trade... and opening up access to Gaza is essential to expand private sector growth and employment," the report said.
"If both the PA and the Government of Israel implement changes, the impact of donor aid would increase significantly," it added.
The report is to be presented at a May 4 meeting in Brussels of the Ad Hoc Liaison Committee, which coordinates international donor support for the Palestinians.
US President Donald Trump is to host Abbas at the White House the day before, for talks on efforts to revive the Middle East peace process.