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     6-K

Tel Aviv, October 31, 2005
 Our ref: 8268

VIA EDGAR

George F. Ohsiek, Jr.

Branch Chief

Mail Stop 3561

Securities and Exchange Commission

Division of Corporation Finance

100 F Street, N.E.

Washington, D.C. 20549

Blue Square-Israel
Ltd.
 Form 20-F for the fiscal year ended December 31, 2004

Filed June 30, 2005
 File No. 333-05024

Dear Mr. Ohsiek:

We enclose herewith, on our
client’s behalf, responses to the comments raised by the Staff in its comment letter
dated September 8, 2005 with respect to the Form 20-F of Blue Square-Israel Ltd.
(“Blue Square”) for the year ended December 31, 2004. Below we have noted
the Staff’s comment in bold face type and Blue Square’s responses in regular
type. The numbering corresponds to the comment numbers in the Staff’s above
referenced letter.

As
per our discussion with Adam Phippen, Staff Accountant, Blue Square is not filing an
amendment to its Annual Report on Form 20-F for the year ended December 31, 2004. Rather,
Blue Square has set forth in this letter changes that it proposes to make in future
filings with the Securities and Exchange Commission. Blue Square does not believe the
proposed changes set forth in this letter to be material to Blue Square so as to require
it to amend its previously filed Form 20-F.

The enclosed responses are written on
behalf of Blue Square, and reference in the responses to “we” and
“our” refer to Blue Square.

Form 20-F for Fiscal
Year Ended December 31, 2004

Item 5. Operating and
Financial Review and Prospects, page 31

Year Ended December 31,
2004 Compared with Year Ended December 31, 2003, page 33

1.
Please
revise to discuss in more detail the significant changes in the line
                    items captioned “[f]inancial income (expenses), net” and
                    “[o]ther expenses, net.” For example, based on note 15.g.
to                     the financial statements, it appears that financial expenses
increased not only                     due to increased debt levels, but also due
to changes in purchasing                     power gains and losses and changes in
the value of marketable securities                     and short-term deposits. Also
clarify how dividend payments made during                     the year impacted
financial income (expenses), net. Moreover, with respect to significant other
expense items, such as the NIS 63.9 charge in                     2003 related to your
employee agreement, we believe the nature of such                     charges
should be discussed in detail in MD&A, including an
                    explanation of why you believe the charge to be non-recurring in
nature. Refer to Item 5.A. of Form 20-F.

The Company will replace the
“Financial income (expenses), net” and “Other expenses, net”
paragraphs in future filings with respect to the year ended December 31, 2004 compared to
the year ended in December 31, 2003, to read as follows:

“Financial income
(expenses), net. Financial expenses, net in 2004 were approximately NIS 58
million, or $13 million, compared with financial expenses, net of approximately NIS 49
million, or $11 million in 2003. The higher level of financial expenses for 2004 reflects
increased total debt following the Company’s issuance of debentures in August 2003
and the increased dividend payments during the year (which the Company financed partially
by increasing its debt), a reduction in income from the revaluation of marketable
securities and interest income from short-term deposits. These were partly offset by a
reduction in financial expenses due to the termination of adjustments for the effects of
inflation following the introduction and effectiveness of Israel Accounting Standard No.
12.”

“Other expenses, net. Other expenses, net in
2004 were approximately NIS 20 million, or $5 million, compared with other expenses, net
of approximately NIS 137 million, or $32 million in 2003. The 2004 charges consisted
primarily of the following:

 —
a
provision of NIS 8.4 million (U.S. $1.9 million) in respect of the impairment of assets,
in accordance with Israel  Accounting  Standard No. 15 (Impairment of Assets),  and the
closure of         stores;

—
NIS
 4.7  million  (U.S.  $1.1  million)   related  to  dismissal  of  employees  from  the
 Company's         headquarters; and

—
NIS
4.5 million (U.S.  $1.0 million) as a compensation  payment for the termination of a
private label         contract.

2

Other
expenses for 2003 consisted primarily of the following:

—
 a
one-time expense of NIS 63.9 million recorded in the second quarter of 2003, related to
agreements reached between Blue Square and its employees after the change in control of
the Company, according to which Blue Square’s employees were entitled to receive
certain one-time bonuses and additional future benefits;

—
a
provision of NIS 49.2 million in respect of impairment of fixed assets and the costs of
closure of unprofitable stores (lease termination costs and others); and

—
 a
provision of approximately NIS 26 million in respect of the dismissal of approximately
250 employees as a result of an adoption of an efficiency plan by the Company.

Under
Israeli GAAP the above expenses can be classified as “other expenses”. However,
under U.S. GAAP these expenses are classified as operating expenses, see note 18 (a)(12)
to the financial statements.

Year Ended December 31,
2003 Compared with Year Ended December 31, 2002, page 35

2.
Please
disclose how you calculate the change in comparable store sales from
               period to period, including how you treat stores that were closed,
               renovated, or relocated during the period.

 The
following will be added in future filings:

 The
percentage change in same store sales is the percentage change in sales of those stores
that operated continuously during the entire reporting period of both the current year and
that preceding it. Stores are not deemed to have operated continuously (and therefore not
included as “same stores”) if such stores were closed for two weeks or more
during the reported period or the preceding period for any reason, including by reason of
renovation or relocation.”

Liquidity and Capital
Resources, page 43

3.
You
state that your increase in cash generated by operations in fiscal 2004
                    was primarily the result of an advance payment of NIS 80
million made by                     credit card companies in fiscal 2004. Based on
review of your statement                     of cash flows it also appears that your
increase in cash generated by                     operations in fiscal 2004 was
significantly impacted by your NIS 114 million increase in trade payables and
other accounts payable. Please revise to                     disclose all working capital
changes that materially affect your                     liquidity along with the reasons
underlying the working capital changes.

3

 Cash
generated by operations amounted to approximately NIS 349 million, or $80.9 million, in
2004, an increase of 35% compared with approximately NIS 259 million, or $60 million, in
2003, which, in turn, represented a decrease of 11% compared with approximately NIS 291
million, or $67.6 million, in 2002.

 The
increase in cash generated by operations was mainly due to the following:

—
net
cash flows from operating activities excluding changes in working capital was NIS 243
million in 2004 compared to NIS 199 million in 2003;

—
an
increase of approximately NIS 114 million in trade payables in 2004 compared with an
increase of NIS 28 million in 2003 resulting from a change in the payment date to
suppliers at the end of 2004 as opposed to payment dates at the end of 2003;

—
a
decrease in trade receivables in amount of NIS 4 million in 2004 compared with an
increase of NIS 22 million in 2003 resulting from an advance payment of NIS 80 million
made by credit card companies in 2004 following their agreement to spread their payments
to us more evenly during each month. As a result of this agreement, a portion of the
payments by the credit card companies to us are made earlier in the month, and a portion
later in the month. On the other hand, the amount owed by customers increased by
approximately NIS 50 million due to the higher sales in December 2004, compared to sales
in December 2003; and

—
an
increase in inventories in amount of NIS 13 million in 2004 due to an increase in number
of stores compared with a decrease in inventories of NIS 54 million in 2003 due to a
decrease in number of stores.

4.
Please
revise your tabular disclosure of contractual obligations to include
                    estimated interest payments on your debt and planned funding
of your                     severance pay obligations. Since the table is aimed at
increasing                     transparency of cash flows, we believe these payments
should be included                     in the table. A footnote to the table
should provide appropriate disclosure regarding how you estimated the interest
payments. If you choose not to                     include these payments, a
footnote to the table should clearly identify                     the excluded item(s)
and provide any additional information that is                     material to an
understanding of your cash requirements. Refer to Item                     5.F. of
Form 20-F and footnote 46 to SEC Release No. 33-8350.

4

The Company does not have any
severance pay obligations.

The Company proposes to change the
text of the first footnote under the table to read as follows in future fillings:

The table above does not include
payments of interest on our long-term loans because the actual interest payments on most
of the loans are dependent on variable parameters, such as changes in the Israeli CPI,
variable interest rates or foreign currency rates which cannot be predicted at the date of
this report. Without taking into account any changes in the Israeli CPI or changes in
foreign currency rates and assuming the relevant variable interest rate will remain at its
level as it was as of December 31, 2004 (5% per annum), interest payments on the long-term
loans would be NIS 29,023 in 2005, NIS 20,006 in 2006, NIS 2,531 in 2007, NIS 949 in 2008,
NIS 421 in 2009 and NIS 46 in 2010 and thereafter.

Item 15. Controls and
Procedures, page 111

5.
We
note your disclosure that there can be no absolute assurance that your
                    disclosure controls and procedures will detect or uncover all
failures.                     Please either remove this disclosure, or revise your
disclosure to                     clarify that your disclosure controls and procedures
are designed to provide reasonable assurance of achieving the desired control
objectives.                     Also revise your conclusion regarding
effectiveness to reflect, if true,                     that the disclosure controls and
procedures are effective at the                     reasonable assurance level. If
your disclosure controls and procedures                     are not effective at
the reasonable assurance level, please revise your                     disclosure to state this.  Refer to Part II.F.4 of Final Rule Release 33-8238 for guidance.

See response to comment 6 below.

6.
Please
revise your disclosures regarding your principal executive old
                    financial officers’conclusion as to the effectiveness of
your                     disclosure controls and procedures to ensure it encompasses
the entire                     definition of disclosure controls and procedures in
Exchange Act Rules 13a-15(e) and 15d-15(e). Your current disclosure does not
achieve this                     objective. Also confirm to us that your
disclosures regarding the                     effectiveness of your disclosure controls
and procedures are still                     accurate considering the entire
definition of disclosure controls and procedures, or otherwise revise accordingly.

In response to comments 5 and 6, we
will revise our disclosure regarding our principal executive and financial officers’
conclusion as to the effectiveness of our disclosure controls and procedures in future
filings by revising Item 15(a) thereof in its entirety to read as follows:

5

“We performed an evaluation of
the effectiveness of our disclosure controls and procedures that are designed to ensure
that the material financial and non-financial information required to be disclosed on Form
20-F and filed with the Securities and Exchange Commission is recorded, processed,
summarized and reported timely within the time period specified in the SEC’s rules
and forms. There can be no assurance that our
disclosure controls and procedures will detect or uncover all failures of persons within
Blue Square to disclose material information otherwise required to be set forth in our
reports. Nevertheless, our disclosure controls and procedures are designed to provide
reasonable assurance of achieving the desired control objectives. Based on our evaluation,
our management, including our Chief Executive Officer and Chief Financial Officer, have
concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15(d) –15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the
period covered by this report are effective at such reasonable assurance level.”

We confirm that our disclosures
regarding the effectiveness of our disclosure controls and procedures are still accurate
considering the entire definition of disclosure controls and procedures.

Item 17. Financial
Statements, page F-1

Notes to Consolidated
Financial Statements, page F-9

Note 2. Significant
Accounting Policies, page F-10

7.
Please
disclose your method of accounting for costs associated with store
                    closures, as it appears that you have had a significant number
of                     closures during the periods presented. Please ensure the
disclosure                     addresses both the timing of recognition as well as the
measurement of                     the related lease/contract termination costs
and employeetermination                     benefits. Also revise your
United States GAAP disclosures, as                     applicable, to discuss and
reconcile any differences between United                     States and Israeli
GAAP in accounting for store closure costs.

The Company’s store closure
costs include costs relating to the cease-use of leased stores, write-off of the balance
of leasehold improvements, costs of dismantling and other expenses associated with the
exit. The Company does not have costs associated with store closures which may be
considered as one-time termination benefits provided to current employees who are
involuntarily terminated under the terms of a one-time benefit arrangement.

6

A liability for costs that will
continue to be incurred under a contract for its remaining term without economic benefit
to the Company is recognized and measured at its fair value when the Company ceases to use
the right conveyed by the contract, i.e., the right to use the leased property. The
fair value of the liability at the cease-use date is determined based on the remaining
lease rental payments reduced by estimated sublease rental payments that could be
reasonably obtained for the property.

The balance of leasehold improvements
in respect of a store being closed is written off against the statements of operations
when the lease is terminated or when the Company ceases to use the leasehold.

 All
other costs are expensed as incurred.

Except for the difference in
classification of such costs, which is disclosed in the U.S. GAAP reconciliation note
(under Israeli GAAP these costs are classified as “other expenses”), this policy
is also in compliance with US GAAP and therefore the above have no additional effect on
the U.S. GAAP reconciliation note.

The Company’s sign