KHAN YOUNIS, Gaza, March 21 (Reuters) - United Nations Secretary-General Ban Ki-moon on Sunday urged Israel to end a three year-long blockade of the Hamas-run Gaza Strip and called on Palestinians to heal their political rifts.

Ban's visit to the blockaded territory follows a trip made by the European Union's foreign policy chief, Catherine Ashton, who entered the coastal enclave last week.

The Palestinian people are living under very difficult circumstances where normal lives are restricted by closures security checks and road blocks, Ban said.

The UN chief was visiting the Gaza Strip for the second time since Israel ended its three-week offensive against Islamist militants in January 2009 and toured areas where hundreds of houses and factories had been destroyed.

In the southern Gaza Strip town of Khan Younis Ban visited a building site of 150 homes funded by the United Nations and said Israel had recently approved the flow of construction materials need to complete the project.

This is a positive, welcome step and I believe that we need far more ... I have repeatedly made it clear to Israeli leaders that their policy of closures is not sustainable and is wrong ... It causes unacceptable suffering, Ban said.

While it opens some crossings to allow goods for international relief agencies and some private companies, Israel has refused to allow materials that can also be used to make weapons and tunnels such as some chemicals, cement and steel.

Israel has kept a tight blockade on the coastal enclave since June 2007 when Hamas Islamists seized the coastal enclave from rival secular Fatah forces loyal to President Mahmoud Abbas.

The Gaza blockade has fuelled unemployment which now stands at more than 50 percent among the 1.5 million population.

Ban also appealed for a prisoner exchange so that Palestinian prisoners and Israeli soldier Gilad Shalit can be released.

Shalit was captured by Gaza militants in 2006 and Hamas has demanded Israel free hundreds of the thousands of militants in its jails in exchange for the soldier.

Although he did not meet any of Gaza's Hamas rulers, the Islamist group deployed hundreds of armed security men along Ban's route to confront any possible threat by radical Islamist groups that share the same ideology with al Qaeda.