By Adam Entous and Nidal al-Mughrabi

JERUSALEM/GAZA, Dec 16 (Reuters) - Hamas has approved for the first time the establishment of a new bank in the Gaza Strip under its authority, a move that could open a door to bypass a financial blockade imposed by Israel and its Western allies.

Islamic National Bank chairman Ala al-Rafati said the new financial institution had received a licence from the government run by the Islamist group which controls the Palestinian coastal enclave and planned to open for business early in the new year.

Hamas said it will not control the new bank, an assertion disputed by its rivals in the Israeli-occupied West Bank, where President Mahmoud Abbas's Western-backed Palestinian Authority is based.

Rafati likewise asserted that the bank had no factional affiliation, saying the venture was designed to boost local investment in Gaza's economy "in an environment of resistance", a reference to the conflict with Israel.

The Western-backed Palestine Monetary Authority (PMA) in Ramallah, which registers and regulates established banks, said it would shun the Islamic National Bank, meaning the institution may have to function autonomously, without access to funds in the West Bank or to the global banking system.

"The PMA has not authorised the licensing of such a bank, and, accordingly, if there is such a bank, we will pursue every legal action to prevent it from operating," said PMA governor Jihad Wazir.

Matt Levitt, a former senior official at the U.S. Treasury Department, said such a bank would face serious obstacles.

"This would be mostly a bank in name only," said Levitt, an expert on militants' financing at the Washington Institute.

"It's unlikely that any international bank, let alone any Israeli bank, would have anything to do with any bank registered with Hamas and not with the West Bank-based government."

"NO SURPRISE"

Western diplomats said the emergence of an alternative banking system in the Gaza Strip should come as no surprise.

The United States and its European allies have long shunned Hamas, both financially and diplomatically, and cracked down on its access to funding after its 2006 election victory. The West cites Hamas's refusal to recognise Israel and renounce violence.

Israel tightened restrictions after Hamas routed secular Fatah forces loyal to Abbas and seized control of the Gaza Strip in June 2007, increasing hardships for many of the impoverished territory's 1.5 million residents.

At the same time, the PMA has imposed new money-laundering rules, putting pressure on Hamas and other groups to find alternatives to the regulated banking system.

But Western diplomats said a growing, cash-financed trade through tunnels between the Gaza Strip and Egypt could provide enough liquidity for the new bank to function, free from Israeli restictions that have pushed PMA-regulated banks to the brink.

Regulated banks in Gaza have been particularly hard hit by Israeli limits on their access to shekel banknotes, the main currency for Palestinians, making it hard for Abbas to bring in enough cash to pay wages to Palestinian Authority staff there.

Compounding the problem, Israeli commercial banks have decided to sever ties with their established Palestinian counterparts, citing the Israeli government's designation of Gaza as a "hostile" territory following Hamas's takeover.

Despite the boycott and other hurdles, a senior Western diplomat said the new bank, which will operate under Islamic rules that bar charging interest, could prove profitable.

"You get all the money ... from the tunnels ... and then you actually use it for investments within Gaza. You get a rate of return and you're using this liquidity more efficiently," the diplomat said. (Editing by Alastair Macdonald)

AlertNet news is provided by