Definition and usage of a theme hook. Code provide two alternative options: using a template file or a theme function (commented out). It also implements a block to ilustrate the example.

MODULE.module

<?php

/**
 * Contents for file MODULE.module
 */

/**
 * Implements hook_theme().
 * 
 * Define here a theme hook to be implemented within MODULE.theme.inc as function theme_THEMEHOOK($vars) {}
 */
function MODULE_theme() {
  $hooks = array();
  $hooks['THEMEHOOK'] = array(
    'variables' => array('param1' => NULL, 'param2' => NULL, 'items' => array()),
    // You can implement the theme function in a separate file.
    //'file' => 'MODULE.theme.inc',
    
    // Instead of a theme function you can use a template file.
    'template' => 'THEMEHOOK',
  );
  return $hooks;
}

/**
 * Implements hook_block_info().
 */
function MODULE_block_info() {
  $blocks = array();
  $blocks['foo'] = array(
    'info' => 'Lorem ipsum',
  );
  return $blocks;
}

/**
 * Implements hook_block_view().
 */
function MODULE_block_view($delta) {
  $block = array();
  switch ($delta) {
    case 'foo':
      $block['subject'] = 'Dolor sit amet';
      $block['content'] = MODULE_block_content_foo();
      break;
  }
  return $block;
}

/**
 * Compute contents for block 'foo'.
 */
function MODULE_block_content_foo() {
  $items = array();
  // TODO: Obtain content for $items
  
  // Return a build array to be rendered by our theme function.
  $build = array(
    '#theme' => 'THEMEHOOK',
    '#param1' => 'bar',
    '#param2' => 'baz',
    '#items' => $items,
  );
  return $build;
}

MODULE.theme.inc

<?php

/**
 * This file is needed in case you are defining a theme function instead of a template file.
 */

/**
 * Inmplements THEMEHOOK theme hook.
 */
function theme_THEMEHOOK($vars) {
  $output = '';
  
  // Do whatever you want with the data to render.
  $vars['param1'];
  $vars['param2'];
  $vars['items'];

  return $output;
}

THEMEHOOK.tpl.php

<?php
/**
 * Available variables:
 *
 * $param1
 * $param2
 * $items
 */
?>

<h3><?php print $param1;?></h3>
etc etc