By Nidal al-Mughrabi

GAZA, May 8 (Reuters) - Assault rifles, pistols, hand grenades, pipe bombs and assorted ammunition are now on sale in Gaza's bustling used car market.

"Come along, come along, a bullet for eight shekels ($2) and a stun grenade for seven shekels ($1.75)," Hassan, a 17-year-old arms dealer shouts.

Dozens of cars are still being offered but the 25 weapons competing for business show the extent to which the rule of the gun has largely become the rule of law in the Gaza Strip.

"Anarchy, what anarchy?" Hassan says when asked for his view about the lawlessness that pervades the impoverished territory where Palestinian militant groups hold sway.

Some market visitors are horrified.

Abdallah al-Ghalban, 33, said he had come to the market to buy an automobile.

"We were shocked to see it has been turned into a black market for weapons," Ghalban said. "The government should end this chaos."

At least 400 Palestinians have been killed in fighting between rival factions in Gaza in the past year, local human rights groups say.

A security plan proposed by Interior Minister Hani al-Qawasmi, an independent, is on hold due to disputes with security chiefs loyal to President Mahmoud Abbas's Fatah faction, which formed a government with Islamist Hamas in March.

"We hope to be able to put an end to this when the new security plan gets implemented," a police official said about the arms market.

Some of the weapons that enter Gaza Strip are smuggled through tunnels under the border fence with neighbouring Egypt. Militant groups, as well as arm dealers, control them.

Palestinian security forces, including those loyal to Abbas, announced this week they had launched a campaign to uncover tunnels and seal them off.

Sellers hawking weapons at the market said economic necessity had forced them into the arms trade. Poverty has been deepened by a Western freeze of aid to the Palestinian government over Hamas's refusal to renounce violence or recognise Israel.

"We sell arms because of the hardships we are enduring. Also, we have been familiar with arms since we were kids," Hassan said.

Abu Ammar, a father of eight trying to sell his car, said the weapons displays were not out of place.

"It is natural that people would do anything since they have no jobs. It would be natural if they sold their clothes even," he said.

"When order is restored, arms sales will end," Abu Ammar predicted.

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