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The head of the U.N. agency responsible for aiding Palestinian refugees said Wednesday that Israel's near economic blockade of the Gaza Strip is fueling support for extremists and shattering hopes for a peaceful future.

"They're trying to punish those who've taken control of Gaza but in fact they're punishing everybody inside Gaza, a very small percentage of whom support the people who are controlling Gaza right now," Karen Koning AbuZayd of the United Nations Works and Relief Agency said.

The violent takeover of the Gaza Strip last June by the Islamic militants of the Hamas movement, and their continual rocketing of Israel, has led to Gaza's increasing isolation. In September, Israel declared Gaza a hostile entity, clearing the way for economic sanctions.

AbuZayd painted a grim picture of life in the Gaza Strip, saying there has been a 71 percent decrease in goods going into Gaza since May, there is zero stock of 91 drugs compared to 61 last month, and farmers do not have the money to get their crops picked or send them to market so they are rotting.

"That means that there are no fruits and vegetables to supplement the basic rations that 80 percent of Gaza's population receive - flour, oil, sugar, a bit of lentils and powdered milk - either from UNRWA or the U.N. World Food Program," she said.

"It's not good enough," AbuZayd told a news conference. "UNRWA's only giving 61 percent of the daily nutritional needs."

"The main commercial crossings into Gaza from Israel and Egypt have been closed since June, so there are no imports, exports, and there isn't even enough cash being brought in which has made living very difficult," she said.

"We at least have these two military crossings we're using and getting in just enough humanitarian supplies," AbuZayd said. "Israel is very concerned that there is no humanitarian disaster there. There will always be enough food and medicine, but these are very basic rations that are coming in."

AbuZayd said the UNRWA director in Gaza met his counterparts from the Israeli Defense Forces Wednesday morning to discuss the deteriorating situation.

She said they seem to have come to some agreement - "certainly (there was) some sympathy that something needs to be done to make up for these decreasing supplies and the continually decreasing economy of Gaza.

"The point that my director made ... and the point that we are making is we're losing the fight to those who are on the extreme end of the groups in Gaza - and they're the ones that are benefitting by this isolation and this continual squeeze on Gaza and its economy and the people of Gaza," AbuZayd said.

"It can't go on too much further that there is no import and export and movement of people," she said.

AbuZayd said that Wednesday's meeting was "very positive with the Israelis recognizing maybe this is going too far and having the opposite effect of what we want. This is not moving us to peace and security. It is moving us in the opposite direction."

She said she was hopeful that several hundred university students and a few thousand people who went to Gaza for the summer and have been unable to leave will be allowed to leave through the Rafah crossing.

She also expressed hope that the U.S.-sponsored Mideast conference, set for the end of this month in Annapolis, Maryland, will lead to positive movement on the Israeli-Palestinian conflict and provide new hope for the Palestinian people.