JERUSALEM, Sep 25 (Reuters) Israel's biggest commercial bank said today it was severing business ties with Palestinian banks in the Gaza Strip in response to the Israeli government's classification of the territory as an enemy entity.
The decision could deepen economic hardship among Gaza's 1.5 million residents. Israeli currency is used by President Mahmoud Abbas's Western-backed government in the West Bank to pay salaries to its employees in the Hamas-controlled Gaza Strip.
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 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.
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.
Israel Discount Bank , also a main provider of shekels and services to Palestinian banks, said the issue of severing ties with Gaza was under discussion ''but we have not reached a decision''.
UTILITY CUTS Israel declared the Gaza Strip an ''enemy entity'' last Wednesday and said it would reduce its fuel and power supplies to the territory in response to rocket attacks by Palestinian militants.
It has yet to carry out any cuts and pledged to keep humanitarian aid flowing.
Hamas, an Islamist group that opposes Abbas's peace moves with Israel, took over the Gaza Strip by force in June. A Hamas force now guards an armoured car entering the territory once a month with shekels.
By formally defining Gaza as hostile, Israel could argue that it cannot be bound by international law to supply utilities and services to its 1.5 million people.
UN officials have challenged that contention. Israel withdrew troops and settlers in 2005 from the Gaza Strip but Palestinians say it is still occupied because Israel controls its air, land and sea borders.
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