GAZA, June 30 (Reuters) - If pro-Palestinian activists unexpectedly manage to slip past Israel's naval blockade on the Gaza Strip in the coming days, they might be surprised by what they see in the Hamas-controlled enclave when they disembark.

Roads are being paved, houses are being built, new cars have taken to the busy streets and shops are full of myriad products. Even the longtime scourge of unemployment is easing marginally, boosting living standards for a lucky few.

"I have been without work since 2007. Now I can pick and choose," said construction worker Karem Hassoun. "Life has finally smiled on me and my seven children."

But look beyond the building sites and the handfuls of luxury vehicles and the grim reality of everyday life in Gaza is evident, with over 70 percent of people still below the poverty line following years of isolation, conflict and deprivation.

For the second consecutive year, international activists are assembling in the Mediterranean on a motley assortment of boats and plan to challenge Israel's maritime closure of the coastal enclave, which they say is illegal and inhumane.

A year ago, nine Turkish activists were killed when Israeli forces boarded a cruise liner heading for Gaza as the flagship of an earlier flotilla. Israel says its men acted in self-defence and argues its blockade is to stop arms from reaching the Islamist group Hamas, which refuses to renounce violence.

But, faced by a global outcry over those deaths, the Jewish state has eased its land blockade, boosting Gaza's under-developed economy and enabling Israel to argue that the sea protest is driven by politics rather than humanitarian concerns.

Gazans see things differently. While they agree that there are many more goods on the shelves, the one thing that remains in short supply is hope for the future in a place where two in three of its 1.5 million people are from families of refugees.

"Gaza is essentially a prison, and while the conditions have improved, it remains a prison," said Omar Shaban, a well-known Palestinian economist.

"Therefore, people's hopes for a better future are crushed by reality and will remain on hold until the prison walls fall."

TUNNEL TRAFFIC

Nearly 6,000 tonnes of food, fuel and other supplies are transferred into the Gaza Strip every day via Israel. But among the items it routinely refuses to let in are cement and steel, both of which are needed to help rebuild from Israel's offensive against Hamas and its rocket teams in the winter of 2008-09.

Israel says such materials, unless for specific foreign-sponsored projects, could be used to make bunkers and weapons. Gaza's other neighbor, Egypt, has helped enforce the embargo.

But Egypt's recent uprising has eroded policing in the Sinai, allowing smugglers to bring in more supplies through tunnels, aiding the reconstruction of Gaza's infrastructure.

The Hamas economy minister, Ala al-Rafati, estimates that up to 14,000 workers had returned to their jobs in the construction sector in recent months, and up to 1,000 factories, most of them small-scale family firms, had resumed operation.

Rafati thought the unemployment rate had fallen to around 25 percent, while the United Nations Relief and Works Agency for Palestine Refugees (UNRWA) put the figure at 45.2 percent.

"We are not saying the siege is over, but it has failed to achieve its result. The situation in Gaza is that people are refusing to acknowledge the blockade and are challenging it with the few means at their disposal," Rafati told Reuters.

The paucity of the means is obvious in almost any workshop or building site. Spare parts are almost non-existent, while bricks and mortar are as likely to be carried around by donkey and cart as they are by truck or bulldozer.

Adding to the problems, the densely populated is plagued by regular power outages, which cut electricity for up to eight hours a day, adding to miseries in the burning, humid summer.

"Also there are virtually no exports and that prevents a real economic revival. The movement of people is restricted and most Gazans cannot leave," said economist Shaban.

MEDICAL WOES

Egypt said last month it was easing travel restrictions for Palestinians, but this has had little impact so far. It also remains almost impossible for Gazans to enter Israel or travel to the West Bank, where many have friends and family.

About the only way for Gazans to get into Israel these days is if they are seriously ill and need urgent medical attention.

Mahmoud Daher, the Gaza office director of the World Health Organisation (WHO), said shortages of medicine and medical equipment were at an "unprecedented" level, forcing the cancellation of some operations and evacuation of patients.

However, this problem cannot be blamed directly on Israel.

Daher said the two main reasons were a failure by the Palestinian authorities to pay suppliers on time and a lack of cooperation between health authorities in the West Bank and Gaza, which are governed by rival Palestinian movements.

The two feuding parties, Hamas and Fatah, announced a surprise reconciliation pact two months ago. Since then, attempts to enact the accord have foundered, to the intense disappointment of locals who want Palestinian unity.

"Man does not live by bread alone. Hope is more important and we have no faith in the future because of continued divisions among our leaders," said Ali Mohammed, 46, a telephone technician and father of four.

"Because of our leaders' unwillingness to unite, our big dream of having our own state is on hold and the most we can hope for is easier access to the crossings."