JERUSALEM, Dec 13 (Reuters) - Middle East envoy Tony Blair said on Thursday he was confident people in Hamas-controlled Gaza would rally behind President Mahmoud Abbas if they thought peace talks with Israel would succeed.

Blair told Israel's Channel 10 television that final-status issues like the borders of a future Palestinian state, and the fate of Jerusalem and Palestinian refugees, were "resolvable" if the sides had confidence in each others' intentions.

Blair said the "real challenge" was convincing sceptical Israelis and Palestinians that a peace deal could be reached.

"Most ordinary Israelis, most ordinary Palestinians know roughly the deal that has to be done," Blair said without offering any specifics.

Abbas and Israeli Prime Minister Ehud Olmert have launched talks aimed at reaching a statehood agreement next year, before U.S. President George W. Bush leaves office in January 2009.

Blair said this amounted to a "deadline". Olmert says there is no firm timetable.

The talks opened in discord on Wednesday with the Palestinians demanding a halt to settlement building and Israel calling for a crackdown on militants.

"There will be issues that come up between the parties from time to time, like the issue of settlements," Blair said. "But the main thing is to keep going with the negotiation.

"I know people sometimes say to me, 'Look, we've tried this for 40 years, we've tried the peace option for 40 years'," Blair said. "Yes, but that was under a different Palestinian leadership."

Western-backed Abbas and his prime minister, Salam Fayyad, will ask donors at a Dec. 17 conference in Paris to provide about $5.5 billion in aid over three years to strengthen the Palestinian Authority.

The aid, to be used for budgetary support and development, is meant to strengthen Abbas against Hamas Islamists, who seized control of the Gaza Strip in June.

Hamas's grip on the coastal territory has complicated Israeli-Palestinian talks and Blair said the issue "is going to have to be dealt with". The former British prime minister did say how.

Hamas has rejected Abbas's peace drive and called it a waste of time.

"For ordinary Palestinians -- and I am very sure of this, including talking to people who are in Gaza -- if they thought this process was going to succeed, they would get behind President Abbas and Prime Minister Fayyad," Blair said.

"It comes back to the same thing -- the credibility of the process. The majority of Palestinians, the overwhelming majority, just want to get on with their lives." (Writing by Adam Entous; Editing by Robert Woodward)

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