(Fixes typo in para 18)
* Egyptian-Israeli Blockade choking Gaza economy
* Unemployment approaches 40 percent
* Hamas eyes reforms, open to privatisations
By Nidal al-Mughrabi
GAZA, Feb 21 (Reuters) - Voices of construction workers and the noise from their tools used to ring out in Gaza's streets. Now hulks of unfinished buildings stand in eerie silence, and the idle builders are left to worry how to make ends meet.
An Egyptian-Israeli blockade on the Gaza Strip, run by the Hamas Islamist movement, has left industry and construction gasping for resources, pushing unemployment to dizzying heights and deepening suffering for impoverished residents.
The problem intensified after a campaign begun in July by Egypt's military-backed government to close cross-border smuggling tunnels that used to provide Gaza with basic goods including food, fuel and building materials.
Joblessness jumped to 38.5 percent at the end of last year from 32 percent in the third quarter of 2013, according to the Palestinian Central Bureau of Statistics.
The downturn has put Hamas, deemed a terrorist organisation by many Western states, in a financial and political bind.
Buoyed by the Arab uprisings which brought its Muslim Brotherhood allies to power in Cairo, Hamas shunned its old patrons in Iran and Syria. But when the Egyptian army ousted the Islamist government last July, Hamas was left isolated.
Determined to cling to the weapons that have made it a pariah in the Western world, it is being forced to explore economic reforms, including possible privatisations, hoping to alleviate the woes that are everywhere to be seen.
Sitting beside a huge apartment building he has been unable to finish because of the lack of cement, businessman Mohammed Abu Izz sips his tea and smokes a cigarette.
"Forty families have been waiting for five months to move in. Most them paid the price of their apartments in full and I could not deliver," he said glumly.
Gaza is wedged between Israel and Egypt on a 40-km (25-mile) stretch of the Mediterranean coast. Israel tightened a blockade when Hamas, sworn to its destruction, seized control of the strip in a brief 2007 civil war, ousting the forces of the Western-backed Palestinian president, Mahmoud Abbas.
Goods from Israel used to account for between a third and half of imports to the enclave, with the rest coming through the tunnels on the border with Egypt.
Over the past six months, an angry Egypt has caved in many of the underground passages, once a lifeline to Gaza's 1.8 million people, taking the economy down with them.
Egypt accuses Hamas of backing al Qaeda-linked militant groups which have stepped up attacks against Egyptian security forces in the neighbouring Sinai peninsula over the past few months. The violence has spread to Cairo and other cities.
Hamas leaders deny this, saying their arms are aimed only at arch-foe Israel.
Looking to lessen friction with both Egypt and Israel, Gaza's deputy prime minister, Zeyad al-Zaza, told Reuters Hamas had proposed that control of key crossings with its neighbours should be transferred to Gaza's private entrepreneurs.
Such a move would need to be coordinated with numerous parties, including Palestinian President Mahmoud Abbas, and there is no guarantee it will be approved.
"The issue is now being studied by the businessmen," said Zaza, who is also finance minister. "We have told them 'Go and have your discussions with Israel and Egypt'."
Economist Maher al-Tabbaa, who is also director of public relations at the Gaza Chamber of Commerce, said the suggestion reflected Hamas's appreciation of how bad the situation had become. But he wondered how it could be implemented.
"I would say it was more of an attempt to find a solution to (the government's) crisis rather than a practical exit from the current difficult situation," Tabbaa said.
Since 2007, Israel has eased some of curbs on exports to Gaza but maintains a ban on construction materials and a list of items it deems have "dual use" - both civilian and military.
The list looks set to stay in place for the foreseeable future regardless of who operates the crossings.
Resourceful Gazans had managed partially to offset Israeli restrictions by sucking in goods via the tunnels, allowing the economy to grow nearly 15 percent in 2011 and 7 percent in 2012. By the end of last year, growth was put at just 3 percent, Zaza said, with a possible recession looming.
With the population growing at about 3 percent a year, that level of growth represents effective stagnation.
Many factories in Gaza have stopped, others have lowered their output or laid off workers to stay in business.
Naeem al-Siksik, owner of the largest plastics plant in the enclave, said the trade restrictions and tunnel closures were piling pressure on his business, which he valued at $5 million and which used to produce more than half of Gaza's plastic.
Total production output had fallen by almost half over the past seven months, Siksik said.
"We have had to lay off 15 percent of our 150 workers and lower salaries by 20 percent as we try to tackle this crisis, but the situation is becoming worse all the time," he added.
Gaza industries' problems are not limited to import restrictions - power shortages that forces residents to live with up to eight hours of blackout a day means Siksik spends over $100,000 a month on fuel for his own generators.
In an apparent effort to boost efficiency, finance minister Zaza said Hamas was also open to privatising power distribution in Gaza and was in contact with business leaders, although once again, no quick fix was in sight.
"I do not claim the situation is rosy," he said. "But we are seeking by all means to give our people a dignified life." (Editing by Giles Elgood)
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