By Claudia Parsons

UNITED NATIONS, July 25 (Reuters) - Gaza and the West Bank cannot remain politically separated and a future Palestinian state must encompass both territories, the U.N. special coordinator for the Middle East said on Wednesday.

Michael Williams told the U.N. Security Council there had been "a number of important political developments giving cause for hope," but he warned of a "downward economic spiral" in the Gaza Strip.

He welcomed swift international moves to provide financial and political support to the new Palestinian government appointed by President Mahmoud Abbas after his secular Fatah faction lost control of the Gaza Strip to Hamas Islamists in fighting last month.

A renewed diplomatic push by U.S. President George W. Bush and Arab initiatives for peace were also encouraging, he said, as was this month's meeting between Abbas and Israeli Prime Minister Ehud Olmert.

But he added, "It is important that the people of Gaza are not punished for the Hamas takeover."

"Reopening the crossings to prevent the complete collapse of the Gazan economy remains a priority," he said.

Williams said the closure of the Karni crossing had seriously disrupted commerce in Gaza, halting U.N. projects worth $213 million. He said the World Bank estimated more than 75 percent of Gaza's factories had closed and more than 68,000 workers had been laid off.

"Unless the crossings are open for imports and exports, the downward economic spiral will lead to extensive hardship for an already impoverished Gaza Strip," he said.

Saying Abbas should take the lead to resolve the situation, he said: "In the longer term, Gaza and the West Bank cannot remain separated. There is only one future Palestinian state, and it encompasses both the West Bank and the Gaza Strip."

"President Abbas should continue to work to end violence, disarm Palestinian militias and reform Palestinian institutions," Williams said.

China's U.N. ambassador, Guangya Wang, who holds the rotating presidency of the Security Council, said council members Qatar and Indonesia were drafting a policy statement that would address the humanitarian situation in Gaza.

All 15 members of the council must agree to a statement, which means the text will need to pass muster with states sympathetic to Israel, most notably the United States.

This week, former British Prime Minister Tony Blair made his first trip to the region since his appointment as envoy for the quartet of Middle East mediators -- the United States, United Nations, European Union and Russia.

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