RAMALLAH, West Bank, May 31 (Ali Sawafta/Reuters) - The remains of 91 Palestinian militants whose attacks killed hundreds of Israelis were returned to the West Bank and Gaza on Thursday in a gesture Israel said it hoped could help revive peace efforts.

But there was no indication Palestinian leaders were ready to relax their demand that Israel stop all settlement-building in the occupied West Bank and East Jerusalem before they would resume the suspended talks, or that Israel would relent.

The boxed remains of 80 militants were transferred to coffins draped in the Palestinian flag for burial in the West Bank ahead of a solemn ceremony at the official compound in Ramallah of Palestinian President Mahmoud Abbas.

Palestinians in the Gaza Strip waited at Israel's fortified Erez crossing for the handover of 11 bodies, some of them only partial remains.

The militants had been buried, some for decades, in a desolate Israeli military cemetery for enemy combatants in the occupied West Bank.

The dead include more than 20 suicide bombers who killed over 200 people in attacks in Israeli cities from 1995 to 2006, and who to many Israelis are no more than ruthless murderers.

But to Palestinians, they are honored martyrs of the cause.

When we receive the remains of the symbols of the Palestinian cause, the symbols of resistance, we regain hope of achieving victory, in freeing the prisoners and in freeing Jerusalem, said Fawzi Barhoum, spokesman for the Islamist Hamas movement which rules Gaza and rejects Israel's right to exist.

Among the remains returning to Gaza is Reem al-Reashi, a Hamas suicide bomber who blew herself up at an Israeli army checkpoint in 2004, killing four soldiers. Her husband said parts of her body had already been buried. The rest was now on its way.

The handover came at a time of relative calm in Israeli-Palestinian relations. A mass hunger strike by Palestinian prisoners in Israeli jails was peacefully resolved in mid-May through some concessions by Israel, and sporadic clashes along the Gaza border have abated in recent weeks.

It is our hope that this humanitarian gesture will serve both as a confidence-building measure and help get the peace process back on track, said Mark Regev, a spokesman for Israeli Prime Minister Benjamin Netanyahu.

Israel is ready for the immediate resumption of peace talks without any preconditions whatsoever, he said.

In a speech on Tuesday, Netanyahu repeated his call on Abbas to give peace a chance by resuming unconditionally the direct negotiations that broke down in November 2010 over the issue of Israeli settlement expansion in occupied territory.

NOTORIOUS ATTACKS

Abbas on Thursday received German President Joachim Gauck, who was making his first trip to the region. They were due to hold a news conference later at which Gauck was expected to reinforce the Western view that a two-state solution creating a Palestinian state living in peace alongside Israel is the only viable path to lasting peace and is now more urgent than ever.

The Palestinians fear the spread of settlements will deny them a viable independent state envisaged by interim peace deals in the 1990s.

Netanyahu's domestic political coup on May 8, bringing the opposition Kadima party into his camp to create the largest governing majority coalition in Israeli history, has fuelled speculation a fresh peace initiative might be in the making.

But the threat of a nuclear-armed Iran and political instability in the Middle East are Netanyahu's main concerns, and he says those who believe a Middle East peace treaty would magically settle the highly turbulent region are deluded.

Palestine today glorifies its heroes, said a presenter on Hamas's Al-Aqsa radio. With the return of the remains of the heroes, some of whom blew themselves up for Palestine, we hope the spirit of resistance and the smell of gunpowder will return to the alleys and streets of villages and refugee camps.

For some Israelis, the handover opened old wounds, reviving memories of notorious, lethal attacks that shook their country to the core.

Among the remains returned were those of seven Palestinians who in 1975 landed by sea at night to seize the Savoy hotel in Tel Aviv, demanding the release of Palestinian prisoners.

The gunmen were killed in an Israeli commando raid the next morning. Eight hostages and three soldiers, including the commander of the commando unit, were also killed. (Additional reporting by Nidal al-Mughrabi in Gaza and Maayan Lubell in Jerusalem, Editing by Jeffrey Heller and Mark Heinrich)