* Mohammed Dahlan could challenge Palestinian president
* Former Gaza strongman builds ties with Hamas, Egypt
By Nidal al-Mughrabi
GAZA, March 6 (Reuters) - President Mahmoud Abbas has halted salary payments to scores of security men loyal to a rival Palestinian politician, deepening disarray within their U.S.-backed Fatah faction, officials said on Thursday.
They said Abbas's move appeared aimed at weakening Mohammed Dahlan, a former Gaza Strip strongman who lives in Dubai but is widely expected to return to the Palestinian territories to challenge the president and Fatah chairman.
That could spell a bitter and uncertain confrontation given Fatah's statutory limbo since Islamist Hamas, once its partner in the Palestinian government, turned into a foe in 2007 and seized control of Gaza during a brief civil war.
Fatah, which now holds sway only in the Israeli-occupied West Bank, is due to hold a leadership election this year but that has yet to be scheduled. The schism with Hamas makes new national ballots nearly impossible, extending the term of Abbas, who was elected president in 2005.
Fatah official Sufian Abu Zayda said salaries had been suspended for 98 security men who had worked under Dahlan in Gaza before the Hamas takeover. Some of them have since moved to Egypt and the West Bank.
"We knew a month ago about the intention to suspend the salaries. By the time banks closed yesterday it was clear that nearly 100 people, 100 families, had lost their income," Abu Zayda told Reuters.
An official in the West Bank, who asked not to be named, confirmed that a number of salary payments had been suspended but declined to say why.
Dahlan, 52, is among a Fatah "young guard" chafing at the rule of 79-year-old Abbas. Other likely challengers include West Bank strongmen Jibril Rajoub and Marwan Barghouthi. The latter participates in Palestinian political discourse despite serving a life term in an Israeli jail for militant attacks.
Though Hamas blamed him for the inter-factional fighting in Gaza, Dahlan has recently made some informal contact with the Islamists. Abbas was angered by the possibility Hamas and Dahlan could normalise ties, officials and analysts said.
Dahlan was one of the Palestinians' top peace negotiators with Israel for several years.
Palestinian officials, including from Fatah, said he has also formed a close relationship with Abdel Fattah al-Sisi, the Egyptian defence minister and de facto leader, also upsetting Abbas. Cairo has long played a key mediating role among Palestinians and between them and Israel.
Last month a delegation of senior Fatah officials loyal to Abbas made a rare visit to Gaza, during which they urged both Hamas and local Fatah supporters to shun Dahlan.
In 2011, at Abbas's behest, the Fatah Central Committee accused Dahlan of financial and criminal offences. Dahlan rejected the allegations and has never been formally charged with crimes. But he left the West Bank after Abbas's security forces raided his home there, moving to Amman and then Dubai.
Dahlan could not immediately be reached for comment. (Editing by Dan Williams and Ralph Boulton)