* Saudi Arabia calls for support for Egyptian peace efforts
* Views Hamas with mistrust
* Ceasefire in Gaza holds for second day (Adds more quotes from Saudi foreign minister)
By Angus McDowall
JEDDAH, Saudi Arabia, Aug 12 (Reuters) - Saudi Arabia told Israel on Tuesday that it must reach a peace agreement with the Palestinians if it is to survive as a nation, and criticised Muslims for being divided and failing to stop the Jewish state attacking its Arab neighbours.
"Israel has to realize that peace is the only solution for its survival," Saudi Foreign Minister Prince Saud al-Faisal told a meeting of the Organisation of Islamic Cooperation (OIC), the world's largest Muslim body, on the situation in the Gaza Strip.
"As we see, Israel does not shy away from taking its terror to any level, with total disregard to any laws, rules, religious edicts or humanitarian considerations to achieve its goals.
"Its only objective is to uproot the Palestinian existence wherever it is," Prince Saud told the meeting in Jeddah, attended by Palestinian Prime Minister Rami Hamdallah and ministers from the 56-member OIC.
Saudi Arabia, which regards itself as a leader of the Sunni Muslim world, has played only a background role in the diplomacy to end the fighting in Gaza, leaving its ally Egypt as the main Arab player pursuing a ceasefire - in its second day on Tuesday.
The kingdom's policy towards Gaza is complicated by its mistrust of the territory's ruling Hamas, an Islamist movement with close ideological and political links to the Muslim Brotherhood, which Riyadh regards as a terrorist organisation.
Saudi Arabia believes the Brotherhood has a region-wide agenda to seize power from established governments, including the al-Saud dynasty, and has quarrelled with Qatar over its support for the group.
Gaza hospital officials say 1,938 Palestinians, most of them civilians, have been killed since Israel launched a military campaign on July 8 to quell rocket fire from the enclave. Israel has lost 64 soldiers and three civilians.
Efforts to negotiate a permanent peace deal have failed due to differences over the borders of a Palestinian state, the fate of Arab East Jerusalem and the future of displaced Palestinians and their descendents.
NO RIGHT TO SELF-DEFENCE
The veteran foreign minister also rejected Western backing of Israel's right to defend itself against Hamas rockets.
"Israel does not have a right of self-defence as an occupier. There is no rule under international law that says an occupier has a right of self-defence. For any country to take that position shows bad intentions towards the region and bad intentions towards peace in the region," Prince Saud told a news conference after the OIC meeting.
"I don't think it's fair to equate the actions of Hamas and Israel, either in scale or in substance. How can you say that Israel has a right to defend itself when it is the occupier and you do not give the same right to Hamas?"
Arab states, including Saudi Arabia, say they are willing to make peace with Israel after it withdraws from all lands it occupied in the 1967 Middle east war. Hamas' founding charter calls for the destruction of Israel, but its leaders have said in recent years it could live peacefully alongside Israel if Palestinians get back land they lost in 1967.
Prince Saud said the country's development fund would "continue to abide by the kingdom's commitments" by contributing $500 million for Gaza's reconstruction.
Offering 300 million Saudi riyals ($80 million) for medical relief aid, Prince Saud also called for support for Egyptian efforts to end the fighting, saying Muslim divisions had allowed Israel to repeatedly launch wars against Muslims.
"Would it have been possible for Israel to carry out an aggression after another, had the Islamic nation been united?" Prince Saud said.
"What tempts Israel to commit its continuous crimes against the Palestinian people and Muslims as a whole is the weakness it sees in the Muslim nation due to fragmentation and divisions and the spread of sedition within it." (1 US dollar = 3.7504 Saudi riyal) (Additional reporting by Yara Bayoumy and Noura al-Sharif; Writing by Sami Aboudi; Editing by Robin Pomeroy)
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