Tens of thousands of Palestinians have poured into Egypt from Gaza through a border wall destroyed by militants.
Egyptian authorities have made no effort to stop the flood of people seeking food and fuel, which have been in short supply duie to the Israeli blockade of the territory.
Residents of Rafah, a divided town straddling the Egypt-Gaza border, said militants set off explosions that demolished a 200m length of the rusting, 6m-high metal border wall put up by Israel in 2004.
As night fell, Palestinians, including entire families, continued to stream into the Egyptian side of Rafah. Local officials estimate that at least 200,000 people have crossed over in a rare opportunity to leave an area Gazans refer to as a giant prison.
Israel tightened its Gaza border closure last week, briefly halting fuel deliveries to a main power plant and cutting supplies to petrol stations, as well as humanitarian aid including food.
The fall of the Rafah wall punched a new hole in efforts by Israel to keep pressure on the territory in the face of an international outcry over shortages and Palestinian hardship.
In Cairo, Egyptian President Hosni Mubarak said he told his security forces: 'Let them come in to eat and buy food,' saying they could go freely if they were not carrying weapons.
The International Committee of the Red Cross in Cairo earlier described the situation as 'chaotic'. The ICRC said it was ready to take action with the Egyptian Red Crescent in case there was an influx of displaced citizens.
The breakout came just hours after a tense stand-off at the closed Rafah border crossing, where gunfire erupted after a group of Hamas demonstrators, mostly women, forced their way across.
They had been demonstrating against an Israeli blockade that was tightened six days ago to a full-scale lockdown, with Israel halting all fuel shipments and even the entry of humanitarian aid.
The Hamas-run government in Gaza has repeatedly urged Egypt to open the border to relieve the Israeli blockade, which is aimed at halting rocket and mortar fire on nearby Israeli communities.
The European Union and international agencies have called the closure collective punishment on Gaza's 1.5 million people.
The UN Security council resumed bargaining this morning to try to agree a compromise statement that would press for an end to the Israeli lockdown.
However adoption of the non-binding text requires approval by all members, with long-time Israel ally the US a major obstacle.
