DNA double strand breaks (DSB) can be repaired either via a sequence independent joining of DNA ends or via homologous recombination. We established a detection system in D. melanogaster to investigate the impact of sequence constraints on the usage of the homology based DSB repair via single strand annealing (SSA), which leads to recombination between direct repeats with concomitant loss of one repeat copy. First of all, we find the SSA frequency to be inversely proportional to the spacer length between the repeats, for spacers up to 2.4 kb in length. We further show that SSA between divergent repeats (homeologous SSA) is suppressed in cell cultures and in vivo in a sensitive manner, recognizing sequence divergences smaller than 0.5%. Finally, we demonstrate that the suppression of homeologous SSA depends on the Bloom helicase (Blm), encoded by the Drosophila gene mus309. Suppression of homeologous recombination is a novel function of Blm in ensuring genomic integrity, not described to date in mammalian systems. Unexpectedly, distinct from its function in S. cerevisiae, the mismatch repair (MMR) factor Msh2 encoded by spel1 does not suppress homeologous SSA in Drosophila.