By Nidal al-Mughrabi and Ali Sawafta

GAZA/RAMALLAH (Reuters) - Palestinian political parties began registering candidates for municipal elections on Wednesday, the first step in years toward a democratic vote but one that threatens to re-inflame tensions between the rival Fatah and Hamas movements.

The Palestinian Authority based in Ramallah, in the Israeli- occupied West Bank, has called the elections for Oct. 8, with an estimated two million Palestinians eligible to cast ballots.

Hamas, the Islamist group that controls Gaza, has given its backing to the process and is ramping up its electoral machine, hoping to mount as strong a challenge as possible to the Western-backed Fatah led by President Mahmoud Abbas.

In that respect, the municipal ballot is seen as a proxy for legislative elections, which were last held 10 years ago. No new date has been set for either legislative or presidential elections, despite the mandates having long since expired.

The electoral process has repeatedly been scuppered by tensions between Fatah and Hamas, which have frequently spilled over into violence, and it remains to be seen whether the municipal vote will in fact go ahead as planned.

"If this election succeeds, it will be the first breakthrough toward reconciliation," said Hanna Nasser, the chairman of the Palestinian Central Election Committee. "Better to begin late rather than never."

The last municipal ballot was held in 2012, although voting only took place in a fraction of the West Bank's 350 municipalities, and Hamas in Gaza did not recognize it.

The last legislative election was held in 2006 and Hamas scored a surprise victory. That laid the ground for a political rupture - Hamas and Fatah fought a short civil war in Gaza in 2007, since when Hamas has governed the small coastal enclave.

While some hope local elections will help mend fences between the factions, there are doubts whether either party will recognize the outcome and whether it will foster stability.

"Whether they happen or not, it will not change the current status," said Hani Habib, a political analyst based in Gaza.

"The same factors that have undermined all previous attempts to end the division still exist, first among them the lack of will by either side to end the division," he said.

While registration has only just begun, the rivals are already exchanging accusations. Hamas says the Fatah-backed Palestinian Authority is cracking down on Islamist rivals in the West Bank, arresting some and hindering its campaign there, while Fatah says Hamas has threatened its members in Gaza.

"Arrests will only increase the support for Hamas and despite our condemnation, we are determined to go ahead with the vote," Hamas spokesman Sami Abu Zuhri said.

Fatah's spokesman, Osama Al-Qawasmi, said: "Hamas must stop sabotaging the election. We want these elections to be a road toward unity and not to prolong division."

(Writing by Nidal Almughrabi; editing by Luke Baker/Mark Heinrich)