Economic output in the Gaza Strip declined by about one-third between 1992 and 1996. This downturn has been variously attributed to corruption and mismanagement by Yassir Arafat and to Israeli closure policies—the imposition of generalized border closures which disrupted previously established labor and commodity market relationships between Israel and the Strip. The most serious negative social effect of this downturn was the emergence of high unemployment.

Israel's use of comprehensive closures decreased during the next few years and, in 1998, Israel implemented new policies to reduce the impact of closures and other security procedures on the movement of Palestinian goods and labor into Israel. These changes fueled an almost three-year-long economic recovery in the Gaza Strip. Recovery ended with the outbreak of the al-Aqsa Intifada in the last quarter of 2000. The al-Aqsa Intifada triggered tight IDF closures of the border with Israel as well as frequent curbs on traffic in Palestinian self-rule areas, severely disrupting trade and labor movements. In 2001, and even more severely in early 2002, internal turmoil and Israeli military measures in Palestinian Authority areas resulted in the destruction of capital plant and administrative structure, widespread business closures, and a sharp drop in GDP. Another major factor has been the decline of income earned due to reduction in the number of Gazans permitted entry to work in Israel. After the Israeli withdrawal from Gaza the flow of a limited number of workers into Israel again resumed, although Israel has stated its intention to reduce or end such permits due to the victory of Hamas in the 2006 parliamentary elections.

The Israeli settlers of Gush Katif built greenhouses and experimented with new forms of agriculture. These greenhouses also provided employment for many hundred Gazan Palestinians. When Israel withdrew from the Gaza Strip in the Summer of 2005, these greenhouses were bought by the World Bank and given to the Palestinian people to jump-start their economy. Most of these greenhouses have now been looted or destroyed.

According to the CIA World Factbook, GDP in 2001 declined 35% to a per capita income of $625 a year, and 60% of the population is now below the poverty line. Gaza Strip industries are generally small family businesses that produce textiles, soap, olive-wood carvings, and mother-of-pearl souvenirs; the Israelis have established some small-scale modern industries in an industrial center. Electricity is supplied by Israel. The main agricultural products are olives, citrus, vegetables, Halal beef, and dairy products. Primary exports are citrus and cut flowers, while primary imports are food, consumer goods, and construction materials. The main trade partners of the Gaza Strip are Israel, Egypt, and the West Bank.