Israel wants to cut its links with the Hamas-controlled Gaza Strip after militants blasted open the territory's border with Egypt in defiance of an Israeli blockade, Israel's deputy defense minister said on Thursday.

Israel, which occupied the Gaza Strip in 1967, pulled troops and settlers out in 2005 but still controls its northern and eastern borders, airspace and coastal waters, and has imposed a blockade it says is meant to counter militant rocket fire.

Deputy Defence Minister Matan Vilnai said Israel wanted to wash its hands of Gaza altogether by handing over the supply of electricity, water and medicine to others. An Israeli security official said Egypt should take over responsibility.

"We need to understand that when Gaza is open to the other side we lose responsibility for it. So we want to disconnect from it," Vilnai said.

Hundreds of Gazans on Thursday streamed past the flattened border wall into Egypt on foot or donkeys to stock up on goods in short supply, including sheep, motorcycles and medicine.

U.S. Under Secretary of State Nicholas Burns said Washington was in touch with Cairo about the border and was willing to work with Egyptian authorities to restore order there, although he did not provide details on how that should be achieved.

"Our view is that order should be restored to the border," Burns told reporters in Jerusalem, adding that services should quickly be re-established to Gaza's 1.5 million residents.

A spokesman for Hamas, which violently took control of Gaza after routing Palestinian President Mahmoud Abbas's Fatah forces in June, rejected Vilnai's disengagement idea as an attempt to separate Gaza from the occupied West Bank.

According to the official WAFA Palestinian news agency, Abbas also said Israel might seize the chance to sever Gaza from the West Bank, the other territory he wants for a state, and warned of "grave consequences" for a U.S.-backed peace drive.

Egypt declined to comment on the proposal. When asked what Cairo planned to do about the border, Foreign Ministry spokesman Hossam Zaki said the situation was "temporary" and that "every option is under consideration."

SHOPPING FOR GOODS

Militants set off bombs on Wednesday destroying Gaza's southern border wall in the town of Rafah, where Egyptian forces are posted, and allowing tens of thousands of Palestinians to pour through.

Hundreds of Gazans shuttled back and forth to Egypt for a second day on Thursday. Some dragged sheep back over the border and a Hamas spokesman said the Islamist group had paid 16,000 government employees early so they could go shopping.

Prices in Rafah leapt five-fold. In Gaza City, prices that had shot higher due to shortages eased back and previously depleted market stalls in Gaza City were piled high with goods.

The streets of Gaza City were quiet.

"Almost the entire population of Gaza are on vacation in Egypt," said Khaled Ali, a Palestinian policeman guarding the hole in the fence.

Israel tightened its cordon around the Gaza Strip last week, briefly stopping fuel supplies to the territory's only power station and blocking aid shipments as part of the blockade.

The Jewish state has since allowed some fuel into Gaza but European and Western officials said it had limited deliveries in the past two days, leading to some power cuts in the enclave.

The plant's general manager, Derar Abu Sissi, said it may have to start shutting its turbines down again on Sunday night unless Israel approves a fresh delivery of EU-funded fuel.

The U.N. Human Rights Council said on Thursday it deplored the "grave violations" being committed by Israel in Gaza and demanded it lift the blockade. The European Union has condemned the cordon as "collective punishment" on Gazans.

Ismail Haniyeh, Hamas's leader in Gaza, reiterated his call for Egypt and Abbas to meet Hamas in Cairo to secure an agreement to reopen Rafah on a permanent basis.

Abbas, according to the WAFA news agency, reiterated a proposal for the Fatah-dominated Palestinian Authority to take control of Gaza's borders. Israel has so far rebuffed the idea.