"Today, what is or is not allowed into Gaza is never entirely clear and can change from month to month. Broomsticks and chamomile have recently been permitted; toys, music, books, and shampoo with conditioner have been prohibited; and the importation of pasta required the direct intervention of US Secretary of State Hillary Clinton. Almost all of the materials needed for reconstruction after Operation Cast Lead last year have been blocked, although some imports of glass have finally been permitted after months of extended negotiation. As a result of this, there is little productive enterprise within Gaza today. It is only recently that Israel has started to permit limited exports of cut flowers and strawberries, for example, after seven months of blockage. The number of employees in the industrial and construction sectors has fallen from over 53,000 in 2007 to fewer than 3,000 today. According to the most recent report from the World Bank and PalTrade, 70 percent of industrial establishments are closed, 20 percent are operating at 10 percent capacity, and only 10 percent are working at 20-50 percent capacity."
Even such extreme repression cannot break the enterprise of human beings subjected to it. The most impressive manifestation of the survival instincts of Gazans is the proliferation of the so-called "tunnel trade" across the border with the Egyptian municipality of Rafah, which has even created a "new class of wealthier smugglers and merchants". The hundreds of active tunnels - which bring in shoes, clothing, chocolate bars, utensils, appliances, livestock, automobiles, etc - stretching from two hundred meters to a kilometre or more under the border, and costing an average of $100,000 to build and operated by traders and smugglers, have become "Gaza's essential lifeline to the outside world".
The economic embargo was imposed by Isreal in the aftermath of Hamas' victory in the 2006 Palestinian local elections, with the specific objective of shutting out Gaza Strip from the outside world and thereby punishing Palestinians for electing Hamas and hopefully discrediting Hamas before the residents of Gaza Strip. However, expectedly (to any impartial observer of such situations), the embargo has only strengthened the Hamas which has belligerently taken on the embargo (with no small help of the tunnels) and are seen as standing up to protect the Palestinian cause. The conspicuous silence of the Palestinian Authority and the remaining Arab countries appear to have only reinforced the credibility of Hamas.
Update 1 (6/6/2010)
Here is an explanation of the components of the economic blockade of Gza by Isreal.