By Louis Charbonneau

UNITED NATIONS, March 12 (Reuters) - Israel's treatment of the Palestinians in Gaza is not helping to create a basis for peace and could cause lasting damage to Gaza's economy, the United Nations' top humanitarian official said on Wednesday.

In January Israel sealed border crossings with the Gaza Strip in response to Palestinian rocket attacks against southern Israel. The United Nations has warned that this has resulted in a humanitarian crisis for the territory's 1.5 million people, most of whom depend on foreign aid.

"This doesn't look at all like a basis on which you can build a peace settlement, because at the end of the day, it's got to be built on political dialogue and trust and hope, rather than on despair and hatred and humiliation," John Holmes, U.N. under-secretary-general for humanitarian affairs, told Reuters in an interview.

The United States has been pushing the Palestinian Authority in the West Bank and Israel not to abandon peace talks and hopes negotiations could result in an accord before U.S. President George W. Bush leaves office next January.

Holmes said that if Israel thought sealing the borders of Gaza would cause the people there to rise up against the militant group Hamas, which seized power in Gaza in June 2007, there are no signs that it has been effective.

"The idea that somehow it's going to turn the people of Gaza against Hamas or at least stimulate them to rise up against Hamas and throw them out I think is not well founded," he said.

"It's not stopping the rockets, it's not producing the desired political effects, if that's indeed the intention."

Holmes reiterated the U.N. position that the blockade was a form of "collective punishment" for the population of Gaza, which would constitute a violation of international law.

"The consequences of this blockade are felt by the ordinary population, not by those who are deciding to fire rockets, or allowing rockets to be fired, or actually firing them."

ISRAEL BLAMES HAMAS

Israel's deputy permanent U.N. representative Daniel Carmon said Hamas and Israel have been locked in a state of war due to the rocket attacks. He acknowledged that there have unfortunate "humanitarian repercussions on both sides."

"All the responsibility lies with Hamas," he told Reuters. But Carmon reiterated that all Israel's actions have been defensive, a response to the rocket attacks aimed at protecting its population and territory.

But Holmes, who recently visited Gaza to see the situation on the ground, said some of the damage being done to Gaza's economy due to the blockade could be very long-lasting.

"You're in danger of getting into a position where the damage is such that it's more or less irreversible," he said.

He said there have been "marginal improvements" with regard to the number of trucks with humanitarian aid allowed into Gaza though he hoped discussions with Israeli authorities would result in further improvements.

Holmes also said the situation in the West Bank, although much better than in Gaza, was far from ideal.

He said Israeli settlements were being expanded there, construction continued on a security barrier the U.N. says is illegal and many roads were off limits to Palestinians.

"You could imagine that Israel would be pursuing a policy of being very generous to the West Bank and showing what can happen if it's run not by Hamas, but that's not what's happening," he said. (Editing by Cynthia Osterman)

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