It said in a report that over the past 10 years the Palestinian Authority had slashed its deficit by an amount equal to 15 percent of its Gross Domestic Product, "an achievement rarely seen in other places around the world".
But "the PA's finances remain fragile with declining budget support leading to a projected financing gap of about $600 million (530 million euros) in 2016," it added.
"In the short term, donor support and in particular budget support is essential to avoid a fiscal crisis leading to wider economic problems," the report said.
The findings are to be presented in New York next week to a meeting of the Ad Hoc Liaison Committee, which coordinates international donor support for the Palestinians.
"The PA's actions will not be enough to fully close the gap, particularly since local borrowing opportunities are now largely exhausted," the report said.
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It said that the Palestinian economy would remain hobbled as long as the conflict with Israel continued, "but meaningful steps can avoid further deterioration".
It made particular mention of the Gaza Strip, battered in a July-August 2014 war between Israel and Gaza militants, which killed more than 2,200 Palestinians and 73 people on the Israeli side.
It said that of $3.5 billion pledged by donors for the strip's reconstruction, less than half had so far been disbursed.
"The situation in Gaza is of great concern and the conditions required for post-reconstruction sustainable economic growth are not being put in place," the bank's West Bank and Gaza country director, Marina Wes, wrote.
The fighting destroyed or damaged thousands of homes in Gaza and reconstruction has been painfully slow.
"Over 70,000 people are suffering from prolonged internal displacement," Wes said in the report.
"Only 10.7 percent of the 11,000 housing units that were totally destroyed in the war have been rebuilt to date, and about 50 percent of partially and severely damaged houses still need to be repaired."