When the mercury soars and the cloying humidity of the Mediterranean coast makes heading outside a shirt-drenching ordeal, Mazen Masri is usually one of the few Gazans wearing a smile.

But today, Mr. Masri casts a dejected look around his mostly idle ice-cream factory. "This should be the best time of our year," he says. "But I go into the factory and my heart almost breaks."

The Al-Arusa Ice Cream Factory is one of Gaza's oldest industrial-scale businesses. But its prospects are melting under an Israeli economic blockade that has denied it access to its main market, the West Bank, and to the dairy products and chocolate needed to churn out ice-cream sandwiches and Popsicles.

The woes of Al-Arusa are being replicated across dozens of businesses in Gaza, destroying jobs in a society where 80 percent of residents rely on foreign aid. The US and Israel hope that economic pain will translate into frustration with Gaza's governing Islamist Hamas – which the two countries consider a terrorist group – and kill its political support.

Whether that will happen is uncertain. But for now, the policy is increasing anger at Israel and the US among an already radicalized population and feeding the poverty that some analysts say contributed to the rise of Hamas, which took full control of the territory in June after a brief battle with Palestinian President Mahmoud Abbas's Fatah Party.

A business class with generations of ties to Israel is also feeling increasingly powerless. "The Israeli policy is to add to our suffering," says Akram Mushtaha, a recently laid off Arusa employee who has stopped by to see about a loan. "They want Hamas to change? They want Fatah to change? Well, they aren't punishing them. They're punishing me."

Mr. Mushtaha, a former amateur body builder whose parents were driven out of a village near Bersheeba and into the Gaza strip in 1948, has worked at the factory since 1991. He was making a little more than $300 a month when he was laid off. He's come in this day because he still needs money to buy new clothes for his five kids – the oldest 15, the youngest 4 – before school starts in September. His wife has already sold all her jewelry.

"I try to think about the politics of all this, but it makes no sense to me. Our ice cream business has become a threat to Israel? It wasn't a threat before?"

Musthaha says he was one of the hundreds of thousands of Gazans who voted for Hamas in its landslide electoral victory last year, more because he was angry at the perceived corruption and failures of Fatah than because of a commitment to the Islamist ideals of Hamas.

Now, he says, he won't vote again – for anyone. "Sure, I voted for Hamas. But why would I participate in politics again? We had Fatah for years, now we've had Hamas, but the economy just always seems to get worse."

Israeli officials say they are letting in humanitarian food and medical aid, though many Gazans report shortages of medicine. But they say they will restrict movement in and out of Gaza as long as Hamas is in control of the strip and does not end rocket attacks against Israel.

On Monday, Israeli Prime Minister Ehud Olmert gave a symbolic boost to the government of President Abbas by visiting the West Bank town of Jericho.

The meeting was one in a series meant to prepare for an international Mideast conference in the US in November. The Palestinians hope the leaders will sketch the outlines of a final peace deal, to be presented at the conference, Palestinian negotiator Saeb Erekat said Monday.

The four core issues are the borders of a Palestinian state, a division of Jerusalem, a removal of Israeli settlements, and the fate of Palestinian refugees.

Olmert suggested a slower pace. "I came here ... to discuss ... the fundamental issues outstanding between Israel and the Palestinian Authority hoping that this will lead us soon into negotiations about the creation of a Palestinian state," he said.

In Gaza, the blockade is already biting deep. Michael Williams, a coordinator for the UN's regional efforts, told the Security Council last week that 75 percent of factories have closed since Hamas took over. He quoted World Bank data that found that since June, 68,000 jobs have been lost in the teeming strip, home to 1.5 million people.

The rapid impact isn't surprising. Israel forbids sea traffic in and out, there aren't any airports, and Israel has shut the crossings into its territory and into Egypt to all but humanitarian traffic.

Now, businessmen like Masri express despair. Since June, Masri has laid off 150 employees – more than half of his workforce – has cut production by 80 percent, and is starting to worry about where to borrow the money to pay the bills. He said sales were about 10 million shekels ($2.5 million) last year. This year, he says, "we'll be lucky to hit 2 million." Six years ago, his business was thriving.

In addition to his Gaza factory, he and his partners owned two joint ventures in the Erez Industrial Zone on the Gaza-Israel border – one that made ice cream for the Arab-Israeli market, the other a joint venture with Jewish Israelis who made kosher ice cream for religious Jews.

Those factories were shut after the zone was closed in 2004 because of persistent Palestinian attacks in the area.

"I've always been willing to do business with Israel – I was proud of the reputation our product had in the kosher market. I was a huge investor in Erez. Now, I'm treated like a terrorist," says Masri.

Business has also suffered as checkpoints have proliferated. In the late 1960s, when the business was founded, Arusa's trucks delivered ice cream direct to West Bank stores, but those days are long gone.

The border is now completely shut. But even before that happened, ice cream had to be trucked to the Israeli border where it was unloaded, inspected, transferred to an Israeli truck, taken to the Karni crossing, unloaded and inspected again, then placed on Palestinian trucks and taken to stores. Those demands added 15 percent to the cost.

The Yazjo Group for Soft Drinks, which has produced Seven-Up and Pepsi in Gaza since 1962, has literally had the fizz taken out of its business: It can't get CO2 via Israel anymore. "No one wants flat, sweet water," says Amar Yazjo, the son of the company's founder.

He says he's laid off 150 workers so far, keeping some on for his bottled water and juice businesses. He estimates he's losing about $10,000 a day. "We appeal to the Israelis and the Palestinian Authority, but they're not interested.... It seems to me their plan is to keep us at survival level. Now, 80 percent of us rely on aid. I think they'll be happy when that is 100 percent.

"Look, I'm a businessman," he continues. "I want peace with Israel, but all we've experienced since Oslo [the 1993 agreement that set Palestinians on the road to self-government] is constant deterioration. I think what Israel doesn't understand is that what creates Fatah, what creates Hamas, is the occupation and situations like the one we're in now."