By Irwin Arieff UNITED NATIONS, Oct 19 (Reuters) - The "virtual siege" of Gaza does not appear to be helping Israel achieve its goals in the volatile area even as it fuels Palestinian despair, a senior U.N. official told the Security Council on Thursday. Israeli operations in the Gaza Strip since Palestinian militants crossed over into Israel on June 25 to kidnap an Israeli soldier have killed 295 Palestinians including 66 children and have wounded 1,113 others, said Alvaro de Soto, the U.N. coordinator for the Middle East peace process. "However, neither these intensive operations nor continuing diplomatic efforts have led either to the release of the captured soldier or to the cessation of indiscriminate rocket attacks, which have injured 20 Israelis since 25 June," de Soto told the council's regular monthly meeting on the Middle East. A number of Israeli military and intelligence sources say militants have been smuggling even more arms into Gaza in recent months, he said. Forming a Palestinian government of national unity remains the best way out of the crisis, de Soto said. "Only a political way out can defuse it." Palestinian efforts toward a unity government have failed so far over the elected Hamas government's refusal to recognize Israel's right to exist and to swear off violence. Israeli Ambassador Dan Gillerman told the council it was "clear to all that the Hamas government currently leading the Palestinian Authority is driving dangerously on a road that only leads to further isolation." "Today the Palestinian people face a critical decision, one that can reverse their situation, a situation they chose and for which they alone are responsible," Gillerman said. De Soto said Israel's withholding of Palestinian tax and customs receipts and its near-blanket closure of the Gaza crossings, while driven by valid security concerns, continued to cripple the Palestinian economy and its civil service. The combination of a nonfunctioning public sector including security forces, continued Israeli military strikes and a lack of political progress has created "a truly explosive" situation, "as potentially dangerous for Israel as it is currently dangerous for Palestinians," he said. "The virtual siege of Gaza is having a devastating effect on the lives of ordinary Palestinians, stifling hope and fomenting despair, while the continued dangerous launching of rockets at Israeli population centers such as Sderot is a source of deep distress for ordinary Israelis," he said. Israel withdrew its troops and settlers from the Gaza Strip last year and has said it has no intention of reoccupying it, but argues its operations since June are necessary to protect the people of Israel.
