JERICHO, West Bank, May 27 (Tom Perry/Reuters) - Israel's blockade of the Gaza Strip has denied businessman Mazen Sinokrot access to a third of the Palestinian market and forced him to diversify.

Today, instead of shipping chocolate wafers to Palestinians just a two-hour drive from his West Bank factories, he exports cherry tomatoes grown in the Jordan valley to Europe.

We have started diversifying -- not increasing our existing capacities, but diversifying in order to at least leverage more profits to stay alive, said Sinokrot, head of a business group producing everything from surgical gloves to mineral water.

At his Palestinian Gardens packing house in the Jordan valley, cherry tomatoes grown on Sinokrot's land or sourced from other Palestinians are rolling off the production line into plastic cartons destined for supermarket shelves overseas.

The idea is exploit the Jordan valley's unique, sub-sea level climate, always warmer than surrounding areas, to grow and export crops when seasons are ended elsewhere in the world.

Jewish settlers who have moved to the area since Israel captured and occupied the West Bank in 1967 have used those same conditions to build lucrative agribusinesses, exporting everything from top quality dates to herbs.

Palestine could be competitive. The Jordan valley is ours. So why do they get to export and we don't? he said.

We are striving to create the Palestinian substitute for the goods that the settlers have monopolised, Sinokrot said.

He is one of the biggest investors in Palestinian agriculture, a sector that the Palestinian Authority hopes can generate economic growth and jobs.

The sector will be flagged during the Palestine Investment Conference scheduled to be held in Bethlehem in June. We believe there is still untapped opportunity, said Sinokrot, a former Palestinan Authority minister.


IN GAZA, WAGE BILL BUT NO BUSINESS

He says the Palestinians must develop a brand that can be targeted at consumers in countries where goods produced in the settlements are the subject of controversy. World powers view the settlements as illegal and an obstacle to any Palestinian-Israeli peace agreement.

Palestine should be ready to bring in the alternative through a Palestinian certificate of origin, he said.

Success hinges on two elements that are largely beyond the Palestinians' control: access to water and export markets.

Cherry tomatoes, like everything that leaves the West Bank, must pass through an Israeli military checkpoint. Sinokrot complains that inspection takes too long. That can affect the freshness of his produce. An Israeli settler exporting from the same area might gain seven or eight hours on me, he said.

As long as there is occupation, you are always at risk, said Sinokrot. Many farmers have given up trying to export.

Last year, his first exporting fresh produce, Sinokrot shipped 1,500 tonnes of tomatoes, peppers and dates, an amount that pales into insignificance next to the settlements' output.

This year, he aims to treble that. His customers include merchants in Norway, Germany, the Netherlands and Russia.

Sinokrot last sold confectionery in Gaza three years ago.

Access restrictions that had already choked his business there were tightened further when the Islamist Hamas movement, which rejects peace with Israel, won a parliamentary election in 2006 and then seized control of the territory in 2007.

Under the impact of the blockade, the Gaza Strip's economy has stagnated and living conditions have deteriorated.

Though he sells no goods in Gaza, Sinokrot still pays salaries to 15 employees there: I have a Gaza wage bill every month of 50,000 shekels ($13,000). I cannot tell them to go home, he said. They have been with me for 27 years. (Editing by Alastair Macdonald and Samia Nakhoul)