By Nidal al-Mughrabi

GAZA, Dec 15 (Reuters) - Hamas threatened to launch a new uprising against Israel on Saturday when hundreds of thousands of Islamist supporters rallied in Gaza City to mark the group's 20th anniversary.

"Our people are capable of launching a third and a fourth intifada until the dawn of victory rises up," said Khaled Meshaal, the group's exiled leader in a speech recorded on Friday at his base in Damascus.

The central square in Gaza City was awash with green flags and dozens of armed, masked men from the group's military wing patrolled in a crowd estimated at between 300,000 and 500,000.

Founded in 1987 by Sheikh Ahmed Yassin, who was killed by Israel in a 2004 air strike, the group has a charter that calls for the elimination of the Jewish state and the establishment of an Islamic state on all of what was British-run Palestine.

Tensions are high between Hamas and Palestinian President Mahmoud Abbas's secular Fatah faction which the Islamist group routed from Gaza in a civil war in June.

The rally was held at the spot where seven Fatah supporters were killed by gunfire last month while commemorating the fifth anniversary of the death of Palestinian leader Yasser Arafat.

Hamas said Abbas ordered a ban on similar pro-Hamas rallies in the West Bank where the Palestinian President's Fatah movement holds sway.

Meshaal said Abbas, whose administration is backed by the West, lacked the support of the Palestinian people.

"Whoever thinks his legitimacy comes from the international backing is under an illusion, the legitimacy is the people," Meshaal said.

In another speech to the rally, senior Hamas official Mushir al-Masri warned Israel to expect many casualties if Israeli troops invade the coastal territory in an attempt to stop almost daily rocket firing by militants into Israel.

"Jews, go back, because we have already dug graves for you," Masri said. Israel carries out regular raids on Gaza and has killed dozens of militants in the past month.

This week Israel's army chief Gabi Ashkenazi said a major Israeli incursion was becoming more likely.

"We will come to the point where we will have to carry out the big operation," he said. (Writing by Nidal al-Mughrabi and Ori Lewis; Editing by Robert Woodward)

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