By Suleiman al-Khalidi

DEAD SEA, Jordan, June 18 (Reuters) - Blockading the Gaza Strip after the takeover by Hamas Islamists would worsen the humanitarian suffering of its already impoverished people, the head of the U.N. agency for Palestinian refugees said on Monday.

Karen Koning AbuZayd, commissioner general for the U.N. Relief and Works Agency (UNRWA), warned against cutting off Gaza while letting funds flow to the Western backed emergency government set up by President Mahmoud Abbas in the West Bank.

"The whole international community must understand that they should not isolate this little strip of land further," AbuZayd, a U.S. national, told Reuters on the sidelines of an UNRWA meeting.

"The suffering must be alleviated by open access for people and goods to move in."

Israel, which controls Gaza's borders, seeks to isolate Hamas, but says it aims to ensure food and medicine get through.

Israel has put cargo shipments to Gaza on hold, at least while border crossings remain closed. But the Israeli firm sending fuel to Gaza said it restored normal supplies on Monday, reversing an earlier decision to supply only the power station.

AbuZayd said even a partial suspension of fuel supplies could bring untold hardship.

"How many more donkey carts are coming on the streets because people are already suffering?" she said. "If further supplies were cut it will be even more difficult."

AbuZayd said she hoped the plan by the United States, Israel and some European states to quickly lift a ban on direct aid to the new administration in place of a Hamas-led unity government would not divert funds from needy Gazans.

"Gaza is poorer than the West Bank and people suffer more," said AbuZayd, who runs the largest international aid organisation for Palestinians.

Western donors cut off direct aid to the Palestinian Authority in March 2006 after Hamas refused to recognise Israel's right to exist and renounce violence following its defeat of Abbas's Fatah in parliamentary elections.

AbuZayd said a few weeks closure on Gaza could deal a severe blow to a fragile economy that barely functions. Unemployment is over 50 percent in the territory, where the agency provides humanitarian services to most of it's 1.5 million people.

Foodstuffs, including basic staples, could disappear from shops within weeks in the event of a continued Israeli closure -- leaving only humanitarian handouts of flour, lentils and oil available, she said.

"That's why you see everyone rushing to buy all the goods in the stores as if no new things are coming in," she said, noting that suffering was already growing.

"We are seeing an increase in poverty and a decrease in what people are able to do for themselves," AbuZayd said.

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