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By Ori Lewis

JERUSALEM (Reuters) - Israel said on Sunday it had recovered the bodies of five Palestinians who were killed when it blew up a tunnel last week that was dug by militants under the Gaza Strip border, and hopes they can be used to effect the return of Israelis held in Gaza.

The bodies of seven other militants were recovered on the Gaza side of the frontier last Monday when Israel destroyed the cross-border tunnel, raising the death toll to 12.

A military statement said that since the tunnel was blown up, forces had worked in Israeli territory to complete its uncovering and destruction and that "during the ongoing work in the area, the bodies of five terrorists were uncovered."

On Friday, the Islamic Jihad militant group said that five of its militants were missing.

Israel said this year it would withhold the bodies of Palestinian militants killed in attacks against its citizens in order to pressure the larger Islamist Hamas faction to return the remains of soldiers and hand back missing Israeli civilians.

Hamas says it is holding two Israeli soldiers whom the army declared dead after they were lost in action in the 2014 Gaza war. The group also says it is holding two Israeli civilians who strayed into the territory.

Simha Goldin, the father of one of the two Israeli soldiers, on Sunday urged the Israeli government to live up to its promise and said: "Pressure will make Hamas understand that holding Israeli soldiers in not an asset but a burden."

Both Islamic Jihad and Hamas have refused to discuss any deal with Israel.

Dawoud Shehab, an Islamic Jihad spokesman in Gaza said on Sunday: "We are committed to regaining the bodies of our comrades and we will find a way to compel the enemy to do this."

During the 2014 Gaza war, Hamas fighters used dozens of tunnels to blindside Israel's superior forces and threaten civilian communities near the frontier, a counterpoint to the Iron Dome anti-missile system that largely protected the country's heartland from militant rocket barrages.

Neither Israel nor militants in Gaza have appeared eager to seek escalation. Israel has been constructing a sensor-equipped underground wall along the 60-km (36-mile) Gaza border, aiming to complete the $1.1 billion project by mid-2019.

Israel and the United States have called for Hamas to be disarmed as part of the pact between Hamas and the Western-backed Palestinian Authority, so Israeli peace efforts with Palestinian President Mahmoud Abbas, which collapsed in 2014, can be renewed. Hamas has rejected the demand.

Hamas said Israel had made a "futile attempt to sabotage efforts to repair Palestinian unity," a reference to the reconciliation agreement it reached with Abbas last month in which his forces have take over administration of the enclave.

(Additional reporting by Nidal al-Mughrabi in Gaza; Writing by Ori Lewis; Editing by Edmund Blair)

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