* Analysts say Sudan is used to smuggle arms to Hamas
* Sudan minister declines to comment on Hamas issue
* Israel in past has declined to confirm or deny attacks
By Ulf Laessing and Khalid Abdelaziz
KHARTOUM, Oct 24 (Reuters) - Sudan said on Wednesday that an Israeli air strike had caused the huge explosion and fire at an arms factory in Khartoum that killed two people, but Israel's defence minister declined to comment.
Sudan, which analysts say is used as an arms-smuggling route to the Hamas-controlled Gaza Strip via neighbouring Egypt, has blamed Israel for such strikes in the past, but Israel has either refused to comment or said it neither admitted or denied involvement.
Asked by Israel's Channel Two News about Sudan's accusations, Israeli Defence Minister Ehud Barak said: "There is nothing I can say about this subject."
A huge fire broke out late on Tuesday at the Yarmouk arms factory in the south of the capital which was rocked by several explosions, witnesses said. Firefighters took more than two hours to extinguish the fire at Sudan's main factory for ammunition and small arms.
"Four military planes attacked the Yarmouk plant ... We believe that Israel is behind it," Information Minister Ahmed Belal Osman told reporters, adding that the planes appeared to approach the site from the east.
"Sudan reserves the right to strike back at Israel," he said, adding that two citizens had been killed and the plant had been partially destroyed. Another person was seriously injured, he said.
Around 300 people gathered at the courtyard of a government building where the Sudanese cabinet was in an emergency meeting, shouting "Death to Israel" and "Remove Israel from the map."
"Israel is a country of injustice that needs to be deterred," Vice President Ali Osman Taha, standing next to President Omar Hassan al-Bashir, told the crowd. "This attack only strengthens our firmness."
The governor of Khartoum state initially had ruled out any "external" cause for the blast but officials later showed journalists a video from the vast site. A huge crater could be seen next to two destroyed buildings and what appeared to be a rocket lying on the ground.
Osman said an analysis of rocket debris and other material had shown that the attack was engineered by Israel, which Sudan views as an enemy.
Sudan's U.N. Ambassador Daffa-Alla Elhag Ali Osman called on the U.N. Security Council to condemn the attack "because it is a blatant violation of the concept of peace and security."
"It jeopardises peace and security in the entire region, not just in Sudan," he told the council during a briefing on U.N. peacekeepers in Darfur. "We call on you to stop foreign hands from meddling in the Darfur conflict and to help Sudan arrive at a final solution that would maintain peace and security."
Several residents living near the factory told Reuters they had heard planes or missiles before there was a huge explosion.
"I heard a sound like a plane or missile and then the sky was lit up and a huge explosion occurred," a resident who declined to be identified said. "There was a big fire and several subsequent explosions."
Two other residents said buildings near the plant had suffered minor damage.
Soldiers blocked access to the gated plant where the main buildings are located away from the main street, making it difficult to assess the damage when a Reuters reporter visited the area after the midnight blast and on Wednesday morning.
In May, Sudan's government said one person had been killed after a car exploded in the eastern city of Port Sudan. It said the explosion resembled a blast last year that it had blamed on an Israeli missile strike.
Israel declined to comment on the May incident or the 2011 blast, which killed two people and neither admitted nor denied involvement in a similar incident in eastern Sudan in 2009.
The information minister declined to say whether any weapons from Yarmouk had ended up in Gaza, saying that only "traditional weapons in line with international law" were produced there.
Major damage to the Yarmouk plant would be a blow to Sudan's army in its battle against insurgencies in the western region of Darfur and the southern states of South Kordofan and Blue Nile, bordering arch-rival South Sudan.
In 1998, the United States fired missiles at the El Shifa medicine factory in Khartoum. U.S. officials said it was producing chemical weapons ingredients and was partly owned by Osama bin Laden, who once lived in Khartoum. Sudan insisted the plant made only pharmaceuticals.
The attack followed the bombings of U.S. embassies in Tanzania and Sudan's neighbour Kenya, which killed at least 226 people, including 12 Americans. The attacks were blamed on al Qaeda.