BEIT UMMAR, West Bank, Sept 12 (Reuters) - Once a mainstay of the local economy, Palestinian agriculture in the rocky West Bank is in decline as farmers struggle to protect their livelihoods and their lands.

Deprived of water and cut off from key markets, farmers across the occupied territory can only look on with a mix of anger and envy as Israeli settlers copiously irrigate their own plantations and export at will.

The pressure to keep farming is strong, not least because Palestinian farmers believe that Israel and Jewish settlers will expropriate their farmland if they leave it uncultivated.

But with restrictions on water use and land, what farmers produce often fails to match the lower cost or higher quality of what Israel supplies to the Palestinian stores.

Palestinian agriculture represented just six percent of gross domestic product in 2010 from 13.7 percent in 1994, the World Bank said. The Palestinian statistics bureau said where the sector employed 22 percent of the workforce in 1994, now it employs just 12.7 percent.

"Palestinian farmers are fighting a daily, losing battle against Israeli restrictions on land and water," Palestinian Minister of Agriculture Walid Assaf told Reuters.

In a report issued this month, a United Nations agency said the impact of the Israeli occupation on the productive base of the Palestinian economy, and especially its once-flourishing agriculture, "has been devastating."

"The economy has lost access to 40 per cent of West Bank land, 82 percent of its ground water, and more than two thirds of its grazing land," said the U.N. trade and development agency, UNCTAD.

Under agreements signed in 1994, Israel controls more than 80 percent of West Bank water resources by occupying the areas where the water is most plentiful. International aid groups say it is much more generous in distributing the water to its own citizens than the Palestinians, who claim not just the territory, but also the underground aquifers, for themselves.

Human rights organisation Amnesty International says Palestinians on average use 70 litres of water a day while Israelis and Jewish settlers consume an average 300 litres a day.

The differential is even more stark in settler communities in the Jordan Valley and northern Dead Sea, where, according to the Israeli rights group B'Tselem, residents used some 1,312 litres a day in 2008, mainly for agriculture.

This was almost 18 times more than the amount of water made available to Palestinians, the group said in a 2011 report. It said the monthly cost of water for Palestinians was three times more than that paid by settlers.

The direct result of this is easily visible.

While fruit orchards in the farming town of Beit Ummar, north of the city of Hebron, are parched as they rely only on scarce rainfall, a settler farm across the way is lined with black pipes for regular hosing, allowing for faster growth. Lush green, the rows of fruit trees were all picked months ago.

"These plums will sell for 1 shekel ($0.25) a kilo, almost for free! The Israeli plums have already been on the market for one month," said Um Hussein, a 75-year-old woman picking dusty fruit off her tree in an orchard adjacent to a Jewish settlement.

"We can barely afford drinking water, let alone water the trees," says farmer Nafez Khalaylah.

Palestinian farmers in most West Bank areas cannot drill new wells without Israeli permission - something European Union diplomats say hardly ever happens.

Israel says it is already giving Palestinians more water than was agreed in the 1994 interim Oslo peace accords. They say a definitive division of resources can only be decided in a final peace deal - something that has proved elusive in years of mutual recrimination and missed chances.

TIED TO THE PAST

Israeli agriculture experts say the Palestinians could do much more with their land if they adopted modern farming methods including using "drip technology" and modern fertilisers, but again Palestinians counter that it comes down to ample water supplies and unrestricted access to imports.

The locals certainly receive little help or encouragement from the Palestinian Authority, which exercises limited self-rule in the West Bank. It allocates a mere one percent of its budget to farming, despite the sector's importance. In a speech aimed at ending recent protests against tax hikes, Prime Minister Salam Fayyad this week promised to do more for the sector.

Farmers also say they are denied access to some of the West Bank's most fertile land, especially in so-called Area C, which includes the Jordan Valley and is controlled by the Israelis.

Rights group Peace Now says Israel has declared 25,000 acres or 16 percent of the West Bank as "state land" since 1967 and annexed it to settlements. Other areas are still under scrutiny.

In August, the Israeli authority which administers the West Bank, COGAT, ordered a group of farmers near Jericho, close to the Dead Sea, to tear up over 35,000 date palm trees, and leave the land.

COGAT told Reuters the trees had been planted illegally because they were on land where ownership is still to be established. It said in a written statement that the farmers had also been illegally siphoning water from Israeli sources.

Palestinian farmers and officials say the land is owned by the Islamic waqf, a kind of religious trust, which the farmers have been renting for years. They say Israel is threatened by the success of their crop, the sweet, fat Medjoul date, one of the world's most expensive varieties.

Jewish settlements nearby grow Medjoul dates too. Several neighbouring Islamic countries are now boycotting their produce.

GOING TO WASTE

Palestinian farmers also say Israel restricts the entry of West Bank produce to key markets, namely Jerusalem, once the commercial centre for Palestinians. All produce destined to Israel or for export must through Israeli checkpoints and subject to lengthy checks and procedures, significantly increasing production costs and decreasing profitability.

Palestinians imported $72.2 million worth of fruit and vegetables from Israel in 2010, while their own farmers exported just $2.92 million of their produce and often laboured to sell it at home, official local statistics show.

At a wholesale outlet, farmer Mohammad Awad sits surrounded by stacks of plums and 10 tons of Beit Ummar grapes - once much sought after, but now unsold and starting to ferment.

Awad says their only potential market is in the north of the West Bank, where plums and grapes are not grown. But the stalls there are filled with more aesthetic-looking, albeit more expensive Israeli grapes, for 5 shekels ($1.4) a kilo.

"These grapes will end up being sold to a winery for a half shekel ($0.17) a kilo," Awad says, taking a deep drag of his cigarette. "I've been telling farmers not to pick their fruit, there is no market for them," he says.

Once dubbed Palestine's fruit basket, now farmers leave some of their crop to rot in the sun-baked orchards, unwilling to sell it at a loss.

With the sector beset by so many problems, it is little wonder that many farmers are throwing in the towel.

Nafez Khalaylah recalls how 20 years ago, hundreds of farmers would leave their homes every day at five in the morning and walk towards their orchards.

"Now I work all day and I do not see one single farmer, or one single cheerful person," he says.

The owner of 80 trees, he is barely able to make ends meet. Last year, plums sold for 2 shekels ($0.5) a kilo against some 4 shekels in the 1980s. "Maybe next year, we won't be able to sell them at all," he says ruefully.