By Dan Williams

JERUSALEM (Reuters) -Israel's bid to join the U.S. Visa Waiver Program (VWP) hinges on a month-long trial due to start on Thursday, when Israeli authorities will offer unfettered passage to U.S. citizens of Palestinian origin who are West Bank residents, diplomatic sources say.

Israel has long sought access to the VWP, which would mean its citizens would not need to secure a visa before travel to the United States. But progress has been hindered because of restrictions on entry to Israel for Palestinian Americans from the Israeli-occupied West Bank.

Israel's ambassador to Washington, Michael Herzog, will sign a memorandum of understanding with the U.S. Homeland Security Department in the U.S. capital on Wednesday, setting terms for Israel's possible entry into the VWP, an Israeli official said.

The official, speaking on condition of anonymity, said the signing would launch a four to six week review period, after which the United States would decide whether Israel is eligible to be admitted into the program.

Although it has not been advertised beforehand, Israeli and U.S. diplomatic sources said the trial would start on Thursday. If it proceeds smoothly, then Israeli citizens would benefit from the VWP as of October, they said.

A U.S. State Department and Homeland Security Department delegation is due to observe operations during the trial, with visits to Ben Gurion Airport near Tel Aviv and to crossings between the West Bank and Israel, sources said, adding that the findings will be submitted before a Sept. 30 deadline.

Eight sources spoke to Reuters about the trial on condition of anonymity due to the sensitivity of the issue. Two of them said the trial would last one month.

Asked about the plans for the visit by a U.S. delegation, a U.S. Embassy spokesperson said: "Those details have yet to be cemented."

The spokesperson referred further questions to Israel's Interior Ministry, which in turn referred them to the National Security Council in Prime Minister Benjamin Netanyahu's office, which declined to comment.

Israeli Foreign Minister Eli Cohen said last month that the trial, which he called a "pilot" programme, was planned for mid-July. He did not elaborate.

As part of the trial, the sources said Palestinian Americans from the West Bank would be able to fly in and out of Ben Gurion Airport. Until now they have generally had to fly via neighbouring Jordan, cross into the West Bank by land and usually faced restrictions if they then wanted to enter Israel.

They will also be able to begin using new online Israeli forms to apply for entry to Israel at West Bank crossing points as U.S. tourists, said the sources.

U.S. ties with Israel, one of Washington's closest allies, have been strained over policies towards the Palestinians of Netanyahu's hard-right government and its plan to overhaul the judiciary, which critics see as anti-democratic.

The VWP issue was raised when Biden hosted Israeli President Isaac Herzog in the White House on Tuesday, a source briefed on the meeting said. "They reviewed the progress being made and it was expected the process would soon be completed," said the source, who declined to be identified by name or nationality.

U.S. officials assessing the trial will also focus on whether Palestinian Americans or other Arab Americans are subjected to selective grilling by Israeli security personnel.

One source said that, while Israel would bar anyone deemed a security threat, it did not plan as a matter of policy to restrict entry to any American "BDS-ers" - a reference to pro-Palestinian calls to boycott, divest from or sanction Israel.

The Arab American Institute Foundation puts the number of Americans of Palestinian descent at between 122,500 and 220,000. A U.S. official estimated that, of that number, between 45,000 and 60,000 were residents of the West Bank.

An Israeli official gave lower figures, saying that out of 70,000 to 90,000 Palestinian Americans worldwide, about 15,000 to 20,000 were West Bank residents.

(Writing by Dan Williams; Additional reporting by Matt Spetalnick; Editing by Edmund Blair)