RAMALLAH, Apr. 11 (Reuters) - A breakthrough in the peace process and the lifting of Israeli restrictions on the Palestinian territories are vital for durable Palestinian economic growth, the International Monetary Fund (IMF) said Sunday.

An IMF staff report said growth in the West Bank and Gaza Strip will this year remain around 2009 levels of 7% and rise to 10% by 2012-13 in a positive scenario including looser Israeli restrictions and continued donor support.

But growth would slow to 5% in 2010 from an estimated 6.8% in 2009, assuming no progress in the peace process and only ad hoc and limited further easing of restrictions in the West Bank and of Gaza's blockade. The report added that medium-term growth would be around 4% in such conditions.

Conditions in the Gaza Strip have deteriorated due to a tight blockade of the territory run by the Hamas group which is hostile to Israel.

The IMF report said that in 2009, growth in Gaza was 1%. In the West Bank, it was estimated at 8.5%.

A breakthrough in the peace process and removal of restrictions on a wider scale are essential for a durable and regionally balanced growth in the Palestinian territories, it said.

Such growth requires a lifting of the Gaza blockade, the removal of impediments to investment in West Bank areas that fall under complete Israeli control and the lifting of restrictions on Palestinian exports, especially to Israel.

Deficit projected to fall to $1.24B

The report attributed West Bank growth to generous donor budgetary aid, enhanced private sector confidence generated by the Palestinian Authority's (PA) institution-building reforms and Israel's easing of movement restrictions.

However, there has been no additional significant easing of the West Bank's restrictions so far in 2010, and economic activity in Gaza remains severely constrained by the persisting blockade, it said.

Israel says it has facilitated Palestinian economic growth by lifting hundreds of West Bank movement restrictions.

Policymakers in the Western-backed Palestinian Authority have largely attributed economic growth in the West Bank to donor support that the IMF report said was equal to 22% of gross domestic product in 2009.

The Palestinian Authority's recurrent deficit is projected to fall to $1.24 billion from $1.59 billion in 2009. Its external recurrent financing requirements from April to the end of the year are projected at about $1.1 billion, the IMF said, adding that was an urgent need to secure donor funds.

The IMF report said unemployment in the West Bank dropped to 18% in the second half of 2009 from about 20% in the first half. In Gaza, the rate is about 39%.