By Rebecca Harrison

BETHLEHEM, Dec 20 (Reuters) - Offended Bethlehem residents have painted over a satirical mural by graffiti artist Banksy that was meant to highlight their plight.

The elusive British street artist painted six images around the town revered as the birthplace of Jesus to help drum up tourism ahead of Christmas and to illustrate the hardships faced by Palestinians in the occupied West Bank.

But the irony behind a painting of an Israeli soldier checking a donkey's identity papers -- a jab at the Jewish state's strict security measures -- was lost on some locals, who found it offensive and painted over it.

"We're humans here, not donkeys. This is insulting. I'm glad it was painted over," said restaurant owner Nasri Canavati. Comparing someone to a donkey in Palestinian society is like calling them an idiot.

Banksy's images have fetched hundreds of thousands of dollars at auction. His London spokeswoman said a U.S. buyer had reportedly offered $150,000 for a piece of wall in Bethlehem bearing another of his paintings, and estimated the donkey mural was worth at least tens of thousands of dollars.

Not all locals found the mural offensive. Fyras Twemeh thought it was funny and made a neat political point.

"It's offensive for the Israelis, not for us. It shows how much their minds are limited so they even check donkeys," said Twemeh, an architect.

Bethlehem is encircled by military checkpoints and Israel's West Bank barrier. The Jewish state says it needs this to keep out suicide bombers but Palestinians say the barrier stifles the economy and eats into land they want for a state.

Most paintings in Banksy's Bethlehem series -- including a striking image of a dove strapped into a bullet-proof vest -- are still intact although residents daubed black paint over one of Banksy's trademark stencilled rats, which is pictured catapulting stones at an Israeli military watchtower.

"We don't make jokes about kids who sacrifice their lives for their land. They are not rats -- they are lions," said Mike Canawati.

"I'm sure it's worth a lot, but it's not worth more than our dignity." (Editing by Robert Woodward)

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