The situation in Gaza continues to deteriorate as neither Israel nor the Palestinians do enough to obtain peace, a senior UN official told the UN Security Council on Thursday.

Robert Serry, the UN special coordinator for the Middle East peace process, said Israel's announced 10-month suspension of settlement activity fell short of its commitments under the 2003 Road Map peace plan. He called on Palestinians to resume negotiations with Israel, which were suspended after military operations against Hamas left the Gaza strip in a state of calamity

"We are in a race against time to overcome the contradictions on the ground, and the crisis of confidence between the parties, and move decisively toward a political endgame," Serry said at the council's monthly briefing on the Mideast.

He added that the situation in Gaza remains desperate, with thousands still homeless following Israel's three-week-long offensive there aimed at stopping rocket fire into southern Israel.

Although the offensive ended nine months ago, the homes have not been repaired because Israel does not allow raw materials to enter the territory, part of its two-year blockade imposed after Hamas seized power in Gaza.

"The situation is serious. We need, we urgently need, to see some progress in the new year. For that we need Israeli measures which would continue to enable the Palestinians to continue their important work," Serry told reporters after briefing the Council.

'Real progress only after Shalit release'

The UN estimates around 20,000 Gaza residents were made homeless by the offensive. Some 3,500 homes were destroyed, 2,800 were badly damaged and 53,000 others sustained minor damage.

"We continue to appeal to the government of Israel to allow the United Nations actually to start doing some real reconstruction, genuine reconstruction, in Gaza," Serry said. In the meantime, he added, "UN agencies are doing what they can to help the population in the coming winter."

The overcrowded, poverty-stricken Gaza Strip, a sliver of land along the Mediterranean Sea, has short rainy winters that usually begin by December.

Serry said smugglers continue to ship materials and weapons through tunnels into Gaza, while violence remained relatively restrained, with 10 rockets and mortars fired into Israel and one Israeli air strike reported last month.

Following the briefing, Serry said he believed real progress may only be possible after Hamas releases Israeli Cpl. Gilad Shalit, who was captured by Hamas-allied militants in a cross-border raid near Gaza in 2006.

"I am hopeful, if he is released, we will be able to immediately resume these projects. Israel is publicly on record that as long as Shalit is not released, they are not willing to allow significant amounts of construction materials in," Serry said. "Let me add here that this linkage is not accepted by the UN."