By Maayan Lubell

ARIEL, West Bank (Reuters) - An Israeli government move to upgrade Ariel University Centre in the occupied West Bank to a full-fledged university has put the 30-year-old school at the centre of a debate at the core of the Israeli-Palestinian conflict: how the settlements will figure in defining a future Palestinian state.

The cabinet decision on September 9, equating it with universities inside Israel, is another signal from the Israeli government that it intends to retain control of the area around Ariel settlement in any future peace pact with the Palestinians.

The decision has come under attack from several directions, including the Palestinians and international opponents of the West Bank settlements.

The move would "further entrench the presence of settlements in the Occupied Palestinian Territories and create an additional barrier to peace with the Palestinians", British Foreign Secretary William Hague said.

More than 1,000 Israeli scholars wrote in an open letter posted on the Internet in February that it was their "duty to stop the attempt to recruit Israeli academia into the service of the occupation" and called on the education minister to halt the upgrade.

In addition, the heads of seven of Israel's eight universities have petitioned the Supreme Court to stop the upgrade on grounds it will soak up government funds for top schools.

The change still needs final approval from Israeli military authorities in the West Bank, territory captured in a 1967 Middle East war. But officials at the university say that is just a formality now that the government has given the green light.

Supporters of the upgrade, including Prime Minister Benjamin Netanyahu, say it was long overdue.

"Ariel is an inseparable part of the State of Israel and it will remain an inseparable part of the State of Israel in any future (peace) agreement, just like the other settlement blocs," Netanyahu said before the cabinet vote.

Israel has sent mixed signals in the past over whether the enclave, with a population of 17,000, would be included in the major settlement blocs it says will remain in Israeli hands permanently.

Netanyahu added: "Another university has not been added in decades. The population of Israel has doubled (since)... There is a strong desire on the part of young people in Israel to receive a university education."

VIEW OVER SETTLEMENT, VILLAGES

The West Bank is home to about 340,000 settlers and 2.5 million Palestinians. The settlements, which the World Court has deemed illegal, were the reason why talks between Israel and the Palestinians broke down in 2010.

When Chancellor Yigal Cohen-Orgad, then a lawmaker in the right-wing Likud party now led by Netanyahu, joined a small group of professors and settler leaders in establishing the Ariel school in 1982, they had two aims: strengthening Jewish settlement in the area and meeting a growing demand in Israel for a university education.

"We wanted to get two birds with one stone," he said.

Israeli governments have expanded the settlements in the West Bank over the past 40 years while maintaining that their final status should be determined in a peace agreement with the Palestinians.

The government of then-Prime Minister Ariel Sharon started the process toward Ariel college's upgrade to university status in 2005. Two years later, Sharon's successor, Ehud Olmert, granted the school the temporary status of "university centre".

Ariel now has 13,000 students and hopes to increase that number to 20,000 by the year 2025. Its campus, about a 25-minute drive from Tel Aviv, stretches across hilltops dotted with olive trees and overlooks Palestinian villages and the high-rise apartment blocs of Ariel settlement.

"I JUST WANT MY DEGREE"

While geopolitics may have played a part in the foundation of the school, students and faculty say academics are what matters to them.

Sitting in the library studying, Dael Danino and Barak Akerman, two aspiring engineering students, were most concerned about their coming physics exam.

"The location (of the college) and strengthening settlements was not a consideration for me," said Akerman, who lives in a nearby settlement. "I'm not here because of ideals, I just want my degree."

Danino travels to the university every day from the central Israeli city of Ramat Gan.

"Turning the university into a college was a professional move, not a political one," he said.

Dr. Alex Schechter, head of the biological chemistry department, said the college faculty came from across the political spectrum.

"The only thing that unites us is that we want to advance science," he said in his laboratory, surrounded by computers, test tubes and busy researchers in white lab coats.

"My presence here has no (political) goal. The science I do here is the same I'd be doing anywhere else."

For other academics, concern over upgrading Ariel is focused on having to share another piece of the government funding pie and whether Ariel is academically qualified to be a university.

Professor Rivka Carmi, head of Ben-Gurion University in southern Israel, said funding for Ariel would ultimately come at the expense of other universities' research and teaching.

"Upgrading this institution cheapens the term 'research university' and the criteria for such status," she said in an email exchange.

Ariel rejected such accusations in a statement in August responding to the Supreme Court petition, and said that the "cartel of university heads" was scared of losing its monopoly.

PALESTINIANS CALL FOR BOYCOTT

Cohen-Orgad said that about 5 percent of Ariel's budget comes from donations. Those include contributions from prominent Israeli businessmen and private foreign donors.

One contributor is Irving Moskowitz, a Florida bingo magnate known for his financial support of Jewish settlers. The school did not provide details about the size of Moskowitz's donations, but its media school is named after him.

Ariel officials said the rest of the budget comes from the government and from companies that fund joint research and development projects.

About 15 percent of its students come from Jewish settlements, the institution said. Most commute from inside Israel and more than five percent are Israeli Arabs.

On Sept 13 the Palestinian Higher Education Office condemned the government decision to upgrade Ariel and called on universities worldwide to boycott it.

"The so-called university in the illegal Ariel settlement, as with any other settlement or settlement product, should be diplomatically, financially and academically rejected and isolated," a ministry statement said.

Cohen-Orgad said he was not concerned by such a call, although Ariel researchers are already effectively barred from applying for grants by some foundations that will not give money to Israeli research conducted in the West Bank.

He said the collaborative ties Ariel has maintained with universities and researchers around the world would continue.

"If they cooperated with us when we were a college and while we are a temporarily accredited university, do you think it will make a difference to them if we will be called Ariel University? Collaboration between scientists and institutions is based on a shared scientific interest," he said.

(Editing by Jeffrey Heller and Sonya Hepinstall)