By Mohammed Assadi and Rebecca Harrison

BETHLEHEM, West Bank, May 21 (Reuters) - International business executives gathering in Bethlehem on Wednesday for a conference meant to drum up investment for the Palestinians said Israeli restrictions must be eased for the economy to flourish.

Conference organisers said about 500 foreign participants, many representing Gulf investors awash with oil wealth, were at the conference, plus hundreds more from the West Bank and the Hamas-run Gaza Strip.

Seeking to boost the economy as they pursue U.S.-backed peace talks with Israel, President Mahmoud Abbas and Prime Minister Salam Fayyad hope to highlight investment opportunities in the Palestinian territories.

Abbas appealed to Arab and other foreign investors to use their wallets to boost chances for peace, but cautioned in a speech to open the conference that the Palestinian economy would only take off once Israel ended its occupation.

"Investing here will not only be lucrative, but will contribute in achieving and cementing the foundations of the peace process in the Middle East, as well as contributing to security and the economy," Abbas said.

He pledged to create the conditions for investment, but did not elaborate.

World Bank Managing Director Juan Jose Daboub told Reuters that Palestinian areas were ripe for investment despite hundreds of Israeli roadblocks and checkpoints which many local business people complain hamper trade.

He voiced hope that travel restrictions, which Israel says are needed for security but which Palestinians call collective punishment, would soon be eased.

"We are all hoping ... to resolve the issues, to remove the checkpoints or to minimise them," he told Reuters in the West Bank city, just south of Jerusalem. "This is something that we will ... hopefully see happening in the near future."

OBSTACLES

In a tangible sign of how such restrictions can harm trade, organisers said scores of business people were unable to attend because they were not granted travel permits by Israel.

Jordanian Adnan Abu al-Ragheb, who runs a real estate company in the Jordanian capital Amman, said that although he was on the lookout for business opportunities, he was worried about the impact of checkpoints on potential profits.

Qatari Diar Real Estate Investment Co's CEO, Ghanim bin Saad al-Saad, said travel restrictions were "obstacles that must be removed".

Fayyad, appointed 11 months ago when Abbas dismissed Hamas Islamists from government in a move that ended trade sanctions, said that simply organising the conference was a signal of the opportunities that exist, despite Israeli restrictions.

British Prime Minister Gordon Brown proposed holding such a conference when government donors met in December to pledge $7.7 billion in aid to the Palestinian economy as a way of bolstering negotiations with Israel on establishing a Palestinian state.

U.S. President George W. Bush called this week for oil-rich Arab states to "invest aggressively". U.S. Deputy Treasury Secretary Robert Kimmitt reminded the conference that Washington planned to give $550 million in aid this year.

Several business people from Israel are expected, organisers said, as well as delegates from the Gaza Strip, which Hamas seized last June. It faces bleak prospects with its economy squeezed between militants' rockets and an Israeli blockade. (Writing by Rebecca Harrison; Editing by Giles Elgood)

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