JERUSALEM, Sept 28 (Reuters) - The Bank of Palestine said on Friday it did not provide any cash to an Islamic bank which has come under Israeli scrutiny over deposits into the accounts of a Hamas security force in the Gaza Strip.

"We don't have any connection with the Palestine Islamic Bank. We don't provide them with any bank notes whatsoever," said Ihsan Shaushaa, assistant general manager for foreign relations with the Bank of Palestine, the largest Palestinian commercial bank.

Israeli investigators told Reuters earlier this week that Israeli currency from Discount Bank <DSCT.TA>, Israel's third largest, had inadvertently made its way last month to the Palestine Islamic Bank.

Western diplomats and Islamic Bank officials estimated that some 3 million shekels ($745,000) were deposited into Hamas Executive Force accounts before the mistake was discovered and the accounts were frozen.

"We (the Bank of Palestine) never received any bank notes from Discount Bank to our branches in Gaza," Shaushaa said, adding that the Bank of Palestine's notes come from Israel's largest commercial bank, Bank Hapoalim <POLI.TA>.

Shaushaa said the Bank of Palestine monitors all transactions to ensure that it complies with Israeli and international money-laundering rules.

Bank Hapoalim said on Tuesday it would stop providing Israeli shekel notes and coins to Gaza. Hapoalim attributed the move to last week's declaration by Israel that Gaza, where Hamas seized control in June, is an "enemy entity".

Regulators say Discount Bank and other Israeli banks plan to follow Hapoalim's lead, threatening Gaza's money supply and President Mahmoud Abbas's ability to pay public sector wages -- part of a U.S.-led, Israeli-backed strategy to bolster his West Bank-based administration and weaken Hamas.

AlertNet news is provided by