The UN has accused Israel of strangling development of the Bethlehem region in the occupied West Bank, BBC reported.
The UN Office for the Coordination of Humanitarian Affairs (Ocha) said just 13% of land around Bethlehem was open for use by the Palestinian population.
It said the traditional birthplace of Jesus Christ was hemmed in by Israeli settlements and military zones as well as Israel's West Bank barrier.
An Israeli foreign ministry official said the issue was beyond Ocha's remit.
Next week, Pope Benedict is due to celebrate Mass in Bethlehem , a Palestinian governorate which is home to 175,000 inhabitants, including many Christians.
Two-thirds of the governorate's 660 sq km (255 sq miles) has been under Israeli control and about 86,000 Israelis live in settlements and outposts in the governorate, Ocha says.
Israel occupied the West Bank in the 1967 war and its settlement activity is regarded as illegal under international law, although Israel disputes this.