Thousands of Palestinians have attended funerals for 16 people killed during an Israeli raid in Gaza, the biggest in recent years.
About 40 Palestinians have died in the incursion
The procession to Rafah sports stadium had to be re-routed when Israeli fire was directed at mourners, wounding two.
The funerals came after troops ended a six-day siege of Tel Sultan district.
On Monday evening, the Israeli army said troops were also being pulled out of the Brazil district, marking the end there of "Operation Rainbow".
An army spokesman said a few troops would remain in the Khishta area of southern Rafah.
As tanks and troops pulled out of Tel Sultan in the early hours of Monday, embattled residents restocked food and begged for water as municipal workers rushed in to repair extensive damage to pipes and power lines.
Palestinian mourners chanted for revenge and gunmen fired volleys into the air as the funeral procession slowly made its way through the devastated landscape of Tel Sultan.
Residents had been unable to reach the bodies during the incursion, causing increased agitation because of the Islamic practice of burying the dead immediately.
The army also allowed traffic to travel from Rafah to the rest of the Gaza Strip for the first time in for nearly a week, saying it was easing conditions for the Rafah beleaguered population.
During the day, Israeli troops continued to demolish homes in the Brazil neighbourhood, with tanks providing cover for bulldozers. Tanks opened fire at people trying to approach the site, according to news agency reports.
Dozens of houses were demolished or damaged during Operation Rainbow, which the army said was to punish Palestinian militants and destroy tunnels used for smuggling arms between Egypt and Rafah.
No tunnels were found in Tel Sultan, which bore the brunt of the damage, although a completed tunnel and another partially dug one were uncovered in another area, the army said.
Some of the worst damage in Tel Sultan was to farming infrastructure
Rafah's farmers have also been counting the cost after Israeli bulldozers flattened large areas of greenhouses, irrigation systems and farmland.
"It's like a desert now," said one farmer, who said he had lost an investment of $55,000.
Television footage of Palestinians picking through the rubble of demolished homes in Rafah has caused worldwide concern, including a rare rebuke from the US and a row inside the Israeli cabinet.
Israeli Justice Minister Yosef Lapid caused controversy on Sunday when he said pictures of an elderly Palestinian woman searching through the rubble of her home in Tel Sultan reminded him of his grandmother, who died in a Nazi death camp.
The UN relief agency for Palestinian refugees said about 180 homes had been destroyed in all, but the army said only 12 homes had been destroyed.
Prime Minister Ariel Sharon has said he will present an amended plan to withdraw from Gaza to his government on Sunday.
The new plan reportedly calls for a phased military pullout from Gaza as well as the evacuation of 21 settlements and a few in the northern West Bank.
He met Egyptian intelligence chief Omar Suleiman for talks on the plan on Monday. Mr Suleiman later went to Ramallah to meet Palestinian leader Yasser Arafat.
Reports from Jerusalem said he was carrying a warning from Mr Sharon to Mr Arafat not to sabotage an Israeli pullback in Gaza.
Israeli Defence Minister Shaul Mofaz told cabinet that the current operation "would continue for several days, but not for several weeks".
Forty-three Palestinians have been killed in the last week in Gaza, including a number of civilians. The operation followed the killing of 13 Israeli soldiers in various ambushes.
In the West Bank, Israeli troops killed a 14-year-old Palestinian boy while dispersing stone throwers during a brief incursion into Nablus.