UPDATE 2-Israel halts fuel shipments to Gaza over fire balloons

(Adds UNRWA school damaged)

By Rami Ayyub and Nidal al-Mughrabi

TEL AVIV/GAZA, Aug 13 (Reuters) - Israel said on Thursday it would stop shipments of fuel into Gaza in response to Palestinians in the enclave launching incendiary balloons that have torched tracts of farmland on the Israeli frontier.

Palestinians in Islamist Hamas-ruled Gaza have launched dozens of helium balloons laden with incendiary material in recent days to pressure Israel to ease its blockade of the territory.

Fuel shipments were stopped "in light of the continued launching of incendiary balloons from the Strip toward (Israel) and of the undermining of security stability," a defence ministry statement said.

Hamas spokesman Fawzi Barhoum called the measure a "grave act of aggression" that would deepen Gaza's economic hardship.

The halt in fuel shipments could shut down Gaza's sole power plant and lead to further electricity cuts, said Mohammad Thabet, an official with Gaza's main power distribution company.

Gaza relies on Israel for most of its energy needs. Its population of two million currently receives around six hours of electricity followed by a 10 hour power cut.

Overnight, Israeli warplanes and tanks struck what the military said were Hamas facilities, calling it a response to the balloons. Israel had earlier shut down Gaza's main commercial crossing and reduced the area where it permits Palestinians to fish.

In Gaza City, a school run by the United Nations Relief and Works Agency (UNRWA) was damaged by one of the strikes, Gaza's interior ministry said.

The school was empty at the time and there were no reports of casualties. "Apparently the device did not explode," an UNRWA statement said.

An Israeli military spokeswoman said the report was being checked.

Israel and Hamas have fought three wars since 2008 and have traded blows in the past few years. Citing security concerns, Israel keeps tight control of its border crossings with Gaza and imposes a naval blockade. (Reporting by Rami Ayyub in Tel Aviv and Nidal al-Mughrabi in Gaza Editing by Robert Birsel and Gareth Jones)