* Faith in politicians, peace talks wanes on both sides
* U.S.-driven diplomacy seen as far-removed
* Palestinians welcome unity, Israelis guard security
By Noah Browning
JERUSALEM, April 25 (Reuters) - An Israeli decision to suspend snarled negotiations with the Palestinians has signalled the latest and perhaps the final blow to two decades of a mostly fruitless peace process.
But the day after the U.S.-led talks were frozen amid mutual recrimination, no angry crowds gathered in the de-facto Palestinian capital Ramallah to urge a rethink and no pro-peace protesters thronged a sun-filled Tel Aviv.
Hopes for winning a stable future through political dialogue have largely evaporated on both sides in recent years, and focus has drifted to the more immediate struggles of daily life.
"It comes as no surprise. From the beginning I didn't think there would be a peace deal," said Jerusalem resident Guy Cohen, 40, a manager of infrastructure projects who spoke standing outside his car with his children buckled up inside.
"The peace process, politics, it never even enters my mind on a day-to-day basis. Things like family, livelihood, sports, are more important. Politics is much lower down."
Mahmoud Idrissi, 28, a taxi driver in the adjacent West Bank city of Ramallah, seemed to agree.
"I live my life and try to enjoy being with my friends and family. Maybe some day things will get better, but I don't see how," he said, chewing on sunflower seeds.
"The politicians' talk is empty, forget it. We've heard it all before, and nothing changes."
When the landmark Oslo Peace Accords were inked in 1993 and the Palestinians gained limited rule in Israeli-occupied lands, dialogue promised to be the best way towards a lasting peace.
But the spread of Jewish settlements, periodic Palestinian uprisings and cyclical spasms of tit-for-tat violence, have hardened hearts and inspired fatalism.
Um Wadiya, a 50-year old Jerusalemite clad in a traditional black robe and Muslim headscarf, grumbles at the spread of settlers in her neighbourhood: "There's no future as long as they're around. They control all the good things."
"I do hope there will be peace some day," she adds. "But it's all in God's hands."
Palestinians seek a state in Gaza, the occupied West Bank and East Jerusalem - lands Israel captured in a 1967 war.
Israel says it is ready to live alongside a Palestinian state, but they disagree over its borders, seek guarantees for their security and want Palestinians to recognise them as a "Jewish state".
FAR FROM REALITY
But these demands, splashed on newspaper headlines and grappled over in meetings by grizzled diplomats, lie far distant from the checkpoints and by-roads of the West Bank or the glassy highrises and thriving beaches of Tel Aviv.
"People have abandoned hope of seeing a comprehensive agreement in the foreseeable future. The demands of daily life are far more important to ordinary Israelis. They don't have time to dwell on issues that are far from reality," said Professor Shmuel Sandler Israel's of Bar Ilan University.
The Israel Democracy Institute and Tel Aviv University's Peace Index, which has been polling public opinion since 1994, found in March a record 92 percent of Jewish respondents having a low or moderately low view of talks succeeding.
Such pessimism suggests that even if leaders on both sides overcome their fierce distrust and return to talks, ordinary Israelis will remain sceptical. The same is almost certainly true of Palestinians, who have long doubted the whole process.
Over half of those polled by the Palestinian Center for Policy and Survey research in March opposed the extension of peace talks, and more than 70 percent viewed the conditions of Palestinians as so-so to very bad.
As barriers have gone up between the Palestinian towns clinging to the West Bank hills and the cities sprawling on the Israeli coastal plain, the two peoples see less and less of each other, and view each other as, at best, a nuisance rather than as neighbours.
"I used to work in Israel, in Netanya, in construction. I learned some Hebrew from my boss and had good friends there," said Bassem Diab, 46, a worker doing odd jobs in the hardscrabble industrial town of Beitunya in the West Bank.
The permit needed to enter Israel used to be easy to get, he said. "Now it's almost impossible. It's more of a struggle to just provide for the family and the occupation makes things more expensive and takes away our dignity. We're frustrated. Things look stuck."
For Palestinians, the breakdown of the peace efforts with Israel had a silver lining, as it opened the way for a long hoped-for unity deal between the Western-backed President Mahmoud Abbas and the militant Islamist group Hamas in Gaza.
Their seven-year feud after a brief and bloody civil war, deeply demoralised Palestinians, and though it is difficult to see how their opposed platforms can be reconciled, it has been welcomed as a boon to national pride.
Political cartoons in Palestinian dailies rejoiced. One gleefully depicted Israeli Prime Minister Benjamin Netanyahu's head stockaded in the word "reconciliation".
"Damn the peace process," said Adel Mena'em, 21, a university student in the Gaza Strip. "Yes, I'm happy Israel ended it ... Reconciliation is more important. Seven years we suffered as families, as friends and as a people. Seven years of our lives were wasted," he said.
Though major attacks on Israeli civilians subsided with the end of a second Palestinian uprising in 2005, many Israelis are scarred by the violence and say that whatever comes, they must be vigilant of a people whom they doubt want genuine peace.
"If the Palestinians were smart, they would have realised they had a lot to gain from a true peace process. The problem is that they continue to educate their younger generation about the 'illegitimacy' Israel as a Jewish state," said Haim Diamant, 62, a computer systems supervisor from Tel Aviv.
"So we will have to continue to live by the sword and build security walls against terrorism and air defences against rockets." (Additional reporting by Allyn Fisher-Ilan, Ari Rabinovitch, Maayan Lubell, Ori Lewis and Jeffrey Heller in Israel, Nidal al-Mughrabi in Gaza; Editing by Crispian Balmer and Alison Williams)