Impoverished Palestinians on the Gaza Strip are being forced to scavenge for food on rubbish dumps to survive as Israel's economic blockade risks causing irreversible damage, according to international observers.

Figures released last week by the UN Relief and Works Agency reveal that the economic blockade imposed by Israel on Gaza in July last year has had a devastating impact on the local population. Large numbers of Palestinians are unable to afford the high prices of food being smuggled through the Hamas-controlled tunnels to the Strip from Egypt and last week were confronted with the suspension of UN food and cash distribution as a result of the siege.

The figures collected by the UN agency show that 51.8% - an "unprecedentedly high" number of Gaza's 1.5 million population - are now living below the poverty line. The agency announced last week that it had been forced to stop distributing food rations to the 750,000 people in need and had also suspended cash distributions to 94,000 of the most disadvantaged who were unable to afford the high prices being asked for smuggled food.

"Things have been getting worse and worse," said Chris Gunness of the agency yesterday. "It is the first time we have been seeing people picking through the rubbish like this looking for things to eat. Things are particularly bad in Gaza City where the population is most dense.

"Because Gaza is now operating as a 'tunnel economy' and there is so little coming through via Israeli crossings, it is hitting the most disadvantaged worst."

Gunness also expressed concern about the state of Gaza's infrastructure, including its water and sewerage systems, which have not been maintained properly since Israel began blocking shipments of concrete into Gaza, warning of the risk of the spread of communicable diseases both inside and outside of Gaza.

"This is not a humanitarian crisis," he said. "This is a political crisis of choice with dire humanitarian consequences."

The revelations over the escalating difficulties inside Gaza were delivered a day after the end of the six-month ceasefire between Israel and Gaza's Hamas rulers, which had been brokered by Egypt in June, and follow warnings from the World Bank at the beginning of December that Gaza faced "irreversible" economic collapse.

The deteriorating conditions inside Gaza emerged as Tony Blair, Middle East envoy for the Quartet - US, Russia, the UN and the EU - warned explicitly yesterday that Israel's policy of economic blockade, which had been imposed a year and a half ago when Hamas took power on the Gaza Strip, was reinforcing rather than undermining the party's hold on power. In an interview in the Israeli newspaper Haartez, Blair warned that the collapse of Gaza's legitimate economy under the impact of the blockade, while harming Gaza's businessmen and ordinary people, had allowed the emergence of an alternative system based on smuggling through the Hamas-controlled tunnels. Hamas "taxed" the goods smuggled through the tunnels.

It was because of this that Blair wrote to Israel's prime minister, Ehud Olmert, earlier this month demanding that Israel permit the transfer of cash into Gaza from the West Bank to prop up the legitimate economy.

"The present situation is not harming Hamas in Gaza but it is harming the people," Blair said yesterday. Calling for a change in policy over Gaza, he added: "I don't think that the current situation is sustainable; I think most people who would analyse it think the same."

Blair's comments came as an Israeli air strike against a rocket squad killed a Palestinian militant yesterday, the first Gaza death since Hamas formally declared an end to a six-month truce with Israel.

Also yesterday, a boat carrying a Qatari delegation, Lebanese activists and journalists from Israel and Lebanon sailed into Gaza City's small port in defiance of a border blockade. It was the fifth such boat trip since the summer. The two Qatari citizens aboard the Dignity are from the government-funded Qatar Authority for Charitable Activities.

"We are here to represent the Qatar government and people," said delegation member Aed al-Kahtani. "We will look into the needs of our brothers in Gaza, and find out what is the most appropriate way to bring in aid."

The arrival of the delegation reflects the growing anger in the Arab world over the Gaza siege, directed at Israel but also at Egypt, which has allowed the border crossings at the southern end of the Strip to remain sealed.

On Friday, thousands of people joined a rally in Beirut organised by Lebanon's Shia Hezbollah movement against Israel's blockade of the Gaza Strip.

Addressing the Beirut crowd, Hezbollah deputy leader Sheikh Naim Kassem called on Arab and Islamic governments to act to help lift the Gaza blockade, and urged Egypt to take an "historic stance" by opening its border crossing with Gaza.

"Silence on the [Gaza] blockade is disgraceful. Silence on the blockade amounts to participation in the [Israeli] occupation," Kassem said.