Israel's biggest bank cutting Gaza ties

By Jeffrey Heller

JERUSALEM (Reuters) - Israel's biggest bank said on Tuesday it was severing business ties with Palestinian banks in the Gaza Strip, a step that could deepen economic hardship in the impoverished territory controlled by Hamas Islamists.

Israeli currency is used by President Mahmoud Abbas's government in the West Bank to pay salaries to tens of thousands of its employees in the Gaza Strip, home to 1.5 million people.

A Palestinian banking official said Bank Hapoalim's move could force Gaza banks to shut down if other Israeli institutions follow suit and stop transferring shekel notes to them.

"In light of the (Israeli) government's decision to declare the Gaza Strip hostile territory, Bank Hapoalim has decided to terminate its banking activity with banks and branches in the Gaza Strip," the Israeli bank said in a statement.

Israel announced last Wednesday it would treat Gaza as an "enemy entity" and reduce its fuel and power supplies to the area in response to rocket attacks by Palestinian militants.

It has yet to carry out any cuts and pledged to keep humanitarian aid flowing.

A Hapoalim spokeswoman said it would take several weeks for the bank to cease completely what she described as "minimal services" to Gaza's financial institutions.

Sami Abu Zuhri, a Hamas official, called the move "a grave decision" that would have a strong impact on life in the Gaza Strip.