The disturbing report, Losing ground: Israel, poverty and the Palestinians, examines in detail how Israel's occupation of the West Bank and the Gaza Strip has been the primary cause of the destruction of the Palestinian economy. It calls for full Israeli withdrawal from the Occupied Palestinian Territories, and for international monitors to oversee the process.
International Development Secretary Ms Short told a packed meeting in the House of Lords that if there was no speedy action the possibility of a viable Palestinian state would be 'eroded'.
'Most people in the world have agreed that the answer is two states side by side, two states that both people can feel safe in and gain security.
'There would need to be lots of international intervention to make people feel safe. But if we don't move quickly, the possibility of a Palestinian state is being eroded by growing settlements and then we have no solution.
'President Bush has said he believes in two states, Colin Powell has said he believes in two states, Prime Minister Sharon has said he believes in two states. If we don't make progress on that, two states will be eroded and then we don't have any political solution around which to mobilise. Then the danger of the crisis becomes enormous.'
William Bell, co-author of the report and Christian Aid's Policy Officer for Palestinians and Israel said: 'The Palestinians are currently living in a state of extreme, worsening poverty and fear for their future. Almost three quarters of Palestinians now live on less than US$2 a day - below the United Nations poverty line.'
The report details how, in the ten years of the Oslo peace process, living standards have worsened for almost all Palestinians living in the West Bank and the Gaza Strip. Last year, due to Israeli closures of these regions, Palestinian earnings from agriculture fell by 70 per cent, as farmers were unable to market their produce, for instance.
Doctors report clear growth in important indicators of poverty - including child malnutrition, anaemia in pregnant women and a sharp increase in numbers of underweight babies. Stress-related conditions such as heart disease and hypertension have also increased. Since the beginning of the second intifada, in September 2000, new cases at mental health clinics have grown by 100 per cent - alarmingly, most of these cases are children.
Ms Short said that according to UNICEF figures, children in the Gaza were now as malnourished as children in the Congo and Zimbabwe.
Christian Aid recognises that the Palestinian Authority has failed to tackle poverty among Palestinians. The report calls on the international community to support reforms of the Palestinian Authority in order to serve the interests of the Palestinian people.
Christian Aid unreservedly condemns suicide bombings and all other attacks on civilians, Israeli or Palestinian. Israel's right to recognition and to safety for all its citizens, as well as its right to economic development, is not in question. Christian Aid believes that the Palestinian people should also be afforded that right.