* Unhappy holiday as refugees flee deadly air strikes
* Battered economy and populace seen struggling to recover
By Noah Browning
GAZA, July 15 (Reuters) - Instead of enjoying celebrations and night time feasts, Palestinians in Gaza are spending the Islamic holy month of Ramadan cowering in their homes and temporary shleters from Israeli bombs.
Muslims fast during the daylight hours in Ramadan and sundown would normally bring a carnival atmosphere to Gaza's crowded streets, with lanterns strung above alleys and children fuelled by sweets playing until the early hours.
Suhair Abu Jalilah and her two daughters are among the some 17,000 Palestinians who fled their homes in Gaza to crowded U.N. schools after Israel warned it would bomb their neighbourhoods.
"There's just no joy this season. We're sleeping on mattresses in a crowded hallway. They provide us our Iftar (the evening meal to break the fast) but other times we're eating porridge and thyme," she said as Israeli drones buzzed overhead.
"We've been so tired and afraid. We hope so much to return and feel some kind of safety soon."
The Gaza Strip already faced a bleak Ramadan because of soaring unemployment and poverty, but the holiday coincided with a battle between Hamas militants launching rockets at Israel and Israeli aircraft pounding the territory.
At least 180 Palestinians have been killed in the fighting, and a truce proposed by Egypt on Monday failed to take hold.
Stores are now shuttered and people stay indoors, listening out for the shriek of rockets and thud of bombs.
Mosque prayers which usually follow the evening meal have mostly been abandoned after Israel destroyed one mosque and damaged another 34, according the local Al-Mezan Association for Human Rights.
Nearly 260 civilian homes have been destroyed and 1,034 damaged, the group said.
Israel said the mosque was used to store rockets and says its attacks only target militant weapons and personnel and strive to avoid civilian casualties.
The Hamas Islamist group which runs the Gaza Strip would usually mark Ramadan by setting up kitchens for the needy and disbursing stipends to public sector workers.
But its political members have now gone into hiding while fighters have taken to the front, leaving more humble employees to cope with the crisis.
Like most other government workers, doctors in the trauma ward of Gaza's main Al-Shifa hospital have not received a salary in three months and just half their wages for four months before due to a cash crunch in the Hamas government and internal Palestinian political squabbles.
Still, medics have worked 24-hour shifts every other day, treating the inflow of bloodied and limbless patients. They keep their fast by not drinking water or eating in daylight and sit down for a modest Iftar when work allows.
"The meal in the hospital isn't great of course, but seeing the condition people are in you're grateful for what you have," Doctor Mohammed Belami said.
"We know we'll get our wages eventually, as well as our rights as a country. In the meantime, it feels good to help people and it helps me forget the psychological stress and low morale I'm going through," he said.
Mohammed Silmi sat in the hospital bed next to his prostrate 14-year old nephew, who periodically grunts and writhes in pain, a cast covering his arm and much of his left side.
An air strike, his uncle said, landed in an alley near where he and a group of other boys were playing on Wednesday.
"For us, Ramadan is ruined. He'll always remember it as the worst in his life." Silmi said.
(Editing by Angus MacSwan)