JERUSALEM (Reuters) - Israel said Sunday it was easing a land blockade on the Gaza Strip to allow in all goods except for arms and materials used to make them.

Israel's Prime Minister Benjamin Netanyahu (R) listens to an Air Force Major General during the weekly cabinet meeting in Jerusalem June 20, 2010. REUTERS/Gali Tibbon/Pool

The softening of a policy criticized as collective punishment of Gaza’s 1.5 million Palestinians to weaken their hardline Islamist leaders follows an Israeli raid on a blockade-running flotilla in which nine activists died.

The United States quickly welcomed the shift and said President Barack Obama would hold a delayed meeting with Israeli Prime Minister Benjamin Netanyahu in Washington on July 6.

Israel’s old rules banned everything it chose not to let in.

Netanyahu said Israel would “as quickly as possible” publish a list of banned goods and all items not on it would be allowed in to the Palestinian territory run by the Hamas Islamist group.

“Israel seeks to keep out of Gaza weapons and material that Hamas uses to prepare and carry out terror and rocket attacks against Israel and its civilians,” he said. “All other goods will be allowed into Gaza.”

Israel has been under pressure to ease its blockade since the May 31 raid on ships bringing aid to Gaza. Israel says the nine Turkish activists killed were waiting to attack Israeli commandos but the outcome sparked an international outcry.

Israel’s allies, including the United States and the European Union, said the blockade was a failing policy that had become counter-productive and difficult to defend.

Welcoming the change, the White House announced the new date for the U.S. and Israeli leaders to meet. Netanyahu was supposed to see Obama at the White House on June 1 after of a trip to Canada but canceled to return home after the flotilla raid.

“Implementation of the policy announced by the government of Israel today should improve life for the people of Gaza and we will continue to support that effort,” the White House said.

Hamas said the Israeli announcement fell short of international demands to lift the blockade completely.

“Hamas rejects this decision. This is an attempt to sap international anger over the blockade on the Gaza Strip,” Hamas official Ismail Radwan told Reuters by phone from Gaza.

Under the new rules Israel will let in building materials for housing projects approved by the Palestinian Authority (PA) and supervised by international organizations. Hamas does not recognize the legitimacy of the PA, based in the West Bank.

The projects included deal with schools, health facilities, water treatment and sanitation, the Israeli statement said.

But it said it would keep the right to ban “dual-use” construction materials that it says could be used by Hamas to manufacture weapons and to rebuild its military facilities.

BLAIR

Netanyahu announced the plan together with international Middle East envoy Tony Blair, who had been lobbying Israel to limit its open-ended embargo to a list of specified items.

Blair represents the Quartet of international powers seeking Middle East peace -- the United States, European Union, United Nations and Russia.

He said the best response from Hamas would be to stop attacking Israel and free Gilad Shalit, an Israeli soldier captured and held for four years.

Blair said the increased flow of goods into Gaza would allow for the “expansion of economic activity” there.

The United Nations says the blockade has not only deprived the poorest in Gaza of basic needs but suffocated the enclave’s chances of trading. It insists building materials be allowed in.

The coastal strip, where 1 million Palestinians depend on aid from the United Nations and other international relief agencies, suffered severe damage in a three-week Israeli offensive launched in December 2008.

There has been practically no reconstruction since thousands of homes and factories were wrecked.

Israel said it would expand operations at border crossings controlled by its army to allow more goods into Gaza. It said it would consider opening more border crossings and allow more people in and out of Gaza, if calm persisted along the border.

Israel’s 2008/09 winter offensive was triggered by incessant rocket fire into Israel from Gaza, which caused few casualties but struck fear into southern Israeli communities.

Israel says it will maintain a sea blockade on Gaza to prevent ships ferrying longer-range rockets to Hamas from its main backer, Iran.

Hamas, which refuses to recognize Israel, seized control of Gaza in 2007 after routing forces loyal to the Fatah movement of Palestinian President Mahmoud Abbas, who heads the PA.

Hamas is opposed to the current indirect peace talks with Israel, mediated by the Obama administration.