At least one Palestinian has been killed by gunfire that broke out during clashes between Egyptian police and Gazan protestors at the Rafah crossing.
Hundreds of Palestinian protesters confronted Egyptian security forces
Several Palestinians and 38 Egyptian police were injured in the fighting.
The shooting erupted at the border crossing one day after it was re-sealed by Egypt.
Palestinian militants blasted holes in the border wall last month. Tens of thousands of people have since poured across from the blockaded Gaza Strip.
The final gap in the border was closed on Sunday, with thousands of Gazans still on the wrong side.
Security was tightened further on Monday, with Egyptian police no longer allowing Palestinians stranded in Egypt to return home.
As anger grew during the day, a crowd of Palestinian youths started to pelt an Egyptian border command post with stones.
Shooting erupted after Palestinians pelted Egyptian police with stones
Egyptian forces responded with tear gas, before gunfire erupted from both sides of the border.
It remains unclear who fired first.
Nor is it clear whether the gunmen on the Palestinian side were from Hamas, which runs the Gaza Strip.
The firefight erupted around dusk, and occasional gunshots could still be heard after nightfall.
Tensions in the area have been high for nearly two weeks, with sporadic bursts of violence, says the BBC's Ian Pannell in Cairo.
But Monday's violence was the most serious incident of its kind between the two sides, and sets a dangerous precedent, our correspondent says.
Islamist Hamas militants blasted open the border on 23 January, to allow Palestinians to obtain supplies and defy an Israeli blockade of the coastal territory.
The blockade came after an increase in militant rocket attacks against Israeli territory.
In Israel on Monday, a woman was killed in a suicide attack carried out by militants from Gaza.
The bomber, reportedly a member of the militant al-Aqsa Martyrs Brigade, blew up his explosives at a shopping centre in the southern town of Dimona.
It was the first such attack in over a year, escalating fears in Israel that Gaza-based militants could take advantage of the Rafah crossing chaos to infiltrate Israel via its long and porous desert border with Egypt.
Meanwhile, Amer Qarmoot, a leading member of another Palestinian militant group, was killed in an Israeli air attack in northern Gaza.
The Popular Resistance Committee member died when a missile hit his car in the town of Beit Lahiya. Two other people were injured.