* Envoy pulled from aid vehicle by Israeli troops
* Diplomatic crisis averted by compromise
* France agrees to recall her by year-end
By Noah Browning and Allyn Fisher-Ilan
JERUSALEM, Sept 27 (Reuters) - Israel and France have averted a diplomatic crisis by agreeing that a French diplomat, who hit an Israeli soldier after she was dragged her from a vehicle delivering aid to Palestinians, should return to Paris.
The incident in the occupied West Bank one week ago had the potential to escalate, with Israel considering expelling her and aid groups privately pressing Paris and other European countries involved to protest at the treatment of their diplomats.
"We had a conversation with them (France)," an Israeli official told Reuters, saying Israel was treating the altercation as "an isolated incident that does not affect our relations."
Both sides agreed that the diplomat, Marion Castaing, would return to Paris by the end of the year.
Castaing was one of a group of European envoys manhandled by Israeli soldiers in the Palestinian village of Khirbet al-Makhul when the troops prevented them from handing out French-funded tents and emergency aid to 120 Palestinians whose homes Israel had demolished that week.
A Reuters reporter saw soldiers pull Castaing out of a truck carrying the supplies before driving it away. She told Reuters: "They dragged me out of the truck and forced me to the ground with no regard for my diplomatic immunity".
After picking herself up from the ground, she jabbed an Israeli soldier on the mouth. Israel's foreign ministry described that as a "blunt violation of the law".
Israel cites a ruling by its high court backing its decision to evict the Palestinians from land that Israeli authorities say does not belong to them. The Palestinians say their families have lived there for generations.
Palestinians accuse the Israel of taking over historic grazing lands, either earmarking it for military use or for Jewish settlements which dot the occupied West Bank, land Israel captured in a 1967 war.
The U.S.-based Human Rights Watch has condemned the Israeli eviction orders, saying that "under international humanitarian law in effect in the occupied West Bank, the deliberate unlawful forced transfer of a population is a war crime".
Aid groups had urged Paris to stand by Castaing, but neither France nor other EU governments appeared willing to confront Israel over the highly unusual confrontation.
EU-funded projects for impoverished Palestinian communities depends on the permission of Israel, and complaints over access to Israeli-controlled areas have been limited to private diplomatic communications, to avoid tension, sources say.
Security personnel from the French consulate moved Castaing from her Jerusalem home on Wednesday after she received threatening phone calls and her address and pictures of her house were published online, a French official told Reuters. (Editing by Robin Pomeroy)
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