Israel's delay in releasing frequencies for a second West Bank mobile phone network is holding up economic development, Middle East envoy Tony Blair said on Tuesday.

Blair said if Israel released frequencies for Wataniya Palestine mobile, it would create thousands of new jobs and hundreds of millions of dollars in investment.

"I hope that we can get this moved satisfactorily in the next few weeks," he told Reuters in an interview. "But again it has been very frustrating because we have an agreement, we secured the agreement. All we need is the frequency released."

Israeli Prime Minister Benjamin Netanyahu says he is committed to policies that will improve the Palestinian economy in the West Bank.

"The Israelis have now appointed Silvan Shalom the deputy prime minister, he will take personal charge of these projects ... because, you know, it's been slow," Blair said.

Wataniya Palestine signed a license agreement with the Palestinian Authority in 2007 after bidding 251 million Jordanian dinars ($354 million) to build and operate a new network competing with Palestine Telecommunications Co (PalTel).

But earlier this month, the company, owned by Kuwait's National Mobile Telecommunications Co (Wataniya), a unit of Qatar Telecommunications Co (Qtel), demanded its investment back unless the frequencies were opened.

The company has already installed equipment worth millions of dollars across the occupied West Bank and hired staff.

Blair said a second phone network "may seem a small thing in one sense but it's very important for Palestinian economy."

Israel controls West Bank airspace and telecommunications.

Following U.S. pressure on the right-leaning Netanyahu government, the premier on Sunday endorsed the establishment of a future Palestinian state, but with major conditions including restrictions on its sovereignty.

"We need to get the Israeli system moving, fast, get decisions taken because otherwise we wait for ages," Blair said.

The Wataniya project was set up to challenge the longstanding monopoly of the PalTel in the local market. Its collapse would undercut future investment, Palestinian and Western officials said.

"If we cannot get the proper frequency and it cannot go forward then we don't have proper competition on mobile telephony and we don't get the investment and jobs," Blair said.

The U.S. government and World Bank are also impatient to see the second network established, as part of efforts to boost support for Palestinian President Mahmoud Abbas and his Western-backed government in the Israeli-occupied West Bank.

Israel and the Palestinian government signed an agreement last year to release the frequencies. But Wataniya Palestine said it has yet to receive all of them, delaying the launch of commercial services in the West Bank.

Wataniya told Blair in a letter last month that Western-backed loans to build the network were in jeopardy because it lacked frequencies.

Western diplomats said the company's threat to pull out was a pressure tactic to spur Israel to release the frequencies.