By Daliah Merzaban and Saleh al-Shaibany

MUSCAT, Dec 28 (Reuters) - Gulf Arab rulers gathering in Oman on Monday were set to sign monetary union pacts even as Israel's attack on Gaza and global financial turmoil overshadow their mainly economic agenda, an Omani official said on Sunday.

"I don't think the agenda will be derailed," Abdulmalik al-Hinai, undersecretary for economic affairs at Oman's Ministry of National Economy, told Reuters in an interview, outlining nine economic issues set to be discussed by the Gulf rulers.

"Definitely they will discuss all of the current issues, including Gaza and other issues ...but the GCC likes to have stability in their decisions. If there are new things that will be discussed, it will happen in the right manner."

Leaders of the six member states of the Gulf Cooperation Council (GCC), including Saudi Arabia, are meeting amid tight security in the Omani capital Muscat to approve a long-awaited agreement that will take most of them one step closer to issuing a single Gulf currency.

Oman, which is hosting the meeting and holds the revolving chair of the GCC, is not participating in monetary union.

"They will discuss the monetary union and issue the agreement of the monetary union and the basic law of the monetary council," Hinai said.

Gulf states had yet to reach an agreement on where the common central bank would be located, which could be decided on Monday, he said.

Deciding on the location is one of a series of political roadblocks that have derailed the single currency plan for years.

"They have not agreed on that. At least three of them want it," Hinai said.

Saudi Arabia argues it should host the central bank because it is the region's biggest economy, while other Gulf states are vying for the bank because they do not currently host any regional bodies, he said.

The GCC-Secretariat is based in the Saudi capital, Riyadh.

SIDETRACKED

The agenda faces a last-minute challenge as instability intensifies in the Hamas-ruled Gaza strip, where an Israeli air strike on Saturday killed about 271 Palestinians.

Israel's attack on Gaza would "impose itself on the agenda" of Gulf Arab leaders, Omani Information Minister Hamad al-Rashdi told Reuters earlier on Sunday.

Global economic concerns are also set to weigh on the meeting.

Oil prices have collapsed to about a quarter of their level in July, putting an end to the Gulf region's economic boom, as a global financial meltdown sends many major economies, including the United States and Japan, into recession.

The credit crunch is derailing expansion projects and Gulf Arab bourses have tumbled sharply this year.

"They should put a paragraph on the financial crisis in the communique," Hinai said.

Rulers would also discuss a proposal to extend by one year the time period to fully implement a regional customs union, Hinai said.

Gulf states had yet to reach a deal on how to distribute customs revenues, an issue that should be resolved by the end of next year following a consultancy study, he said.

Also on the agenda are discussions over the progress of their common market, global free trade agreements, a proposed regional water grid, how to further economic cooperation with Yemen and a regional economic and social development plan, he added.

Gulf Arab states have been discussing monetary union for decades but only set the 2010 deadline for a single currency in 2001. All the Gulf countries -- except Kuwait which opted for a basket of currencies in May 2007 -- peg their currencies to the U.S. dollar.

(Editing by Jason Neely)

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