Hilmi Samouni still hopes at some point – "inshallah" – to go back to his old job as a kitchen assistant in the Palmyra, Gaza City's best known shwarma restaurant. But unlike his 22-year-old brother Khamiz, who is working once again in a car paint shop, and his 20-year-old cousin Mousa, on a two-year accountancy diploma course at Al Azhar University, Hilmi, who is 26, found that he couldn't cope when he returned to the Palmyra after the war. "Everyone there was very supportive," he says, "but I couldn't do good work." Unlike Mousa, who also lost his parents, and Khamiz, Hilmi saw the bodies not only of his father Talal and his mother Rahme but also of his wife Maha, age 20, and their only son, six-month-old Mohammed, among the 21 killed in the shelling of the warehouse in which they had been ordered by Israeli troops to gather. It still bothers Hilmi that he has no pictures of any of them; they were burnt when the family home was fired on the day before.

Now Hilmi mainly potters round the house, set amid devastated orchards and chicken coops in the southern Gaza City district of Zeitoun. The graffiti in English and Hebrew on the interior walls, left by the men of the Israeli army's Givati brigade, are the only relics of their two-week occupation of the building – a gravestone drawn beside the words "Gaza we were here"; "One down and 999,000 to go"; "Death to Arabs". Has the family deliberately kept the graffiti visible? "Yes, but anyway we didn't have paint to cover them," he says. One of Hilmi's duties is to help look after his dauntingly self-possessed 11-year-old sister Mona, who turns the pages of artwork inspired by her memories of the morning of 5 January 2009. "This is me cleaning the face of mother who is dead. This is my father who was hit in the head and his brains came out. This is my dead sister-in-law. This is my sister taking the son from my sister in law..."

The warehouse shelling commemorated in Mona's artwork was one of the worst of many attacks on civilians in Gaza by Israeli forces between 27 December and 18 January. The Israeli military offensive had been a long time coming but still the multiple Saturday-afternoon bombing raids with which it began came as a surprise. The stated purpose was to halt the rocket and mortar attacks – 470 of which had spread undoubted fear through the border communities of southern Israel since an Israeli raid on Hamas ended an uneasy but largely effective five-month ceasefire in early November 2008.

But if the timing was a surprise, the unprecedented ferocity of the onslaught on Hamas-controlled Gaza was even more so. More than two weeks into the war, the Israeli foreign minister Tzipi Livni would boast in a radio interview that "Israel ... is a country that when you fire on its citizens it responds by going wild – and this is a good thing". Whether, as Judge Richard Goldstone's UN-commissioned report on Operation Cast Lead charged, Israel "targeted" the civilian population, or whether, as some soldiers have since attested, the military simply subordinated the preservation of Palestinian lives to those of its own troops, the figures tell their own story of the extent to which "a country" went "wild". Though disputed by the military, exhaustive research by the respected Israeli human-rights agency B'Tselem put the total death toll at 1,387, of whom 773 were civilians. In the same period, four Israelis were killed in Israel by rocket fire, and nine soldiers in Gaza, four from friendly fire. Because the borders were closed, there was no flow of refugees out of Gaza of the sort that would have followed an equivalent onslaught elsewhere.

That early-morning bombardment of Wael Samouni's half-finished warehouse – where some 100 of his extended family, including his young relative Hilmi, had been sheltering – is one of more than 20 events being investigated by the Israeli military police. Last month, pointing out that so far only one soldier has faced trial over his conduct of the war – for stealing a Palestinian's credit card – B'Tselem complained that since the Army itself was doing its own investigating, any indictments would be directed only against "the lower echelon" and that an independent inquiry capable of attributing blame to "senior officers" and government policy-makers in the "political echelon" was needed.

Either way, there is no sign as yet of an investigation into a separate incident early the previous day, the first of the ground invasion. Israeli soldiers, their faces camouflaged in black, some with branches round their helmets, stormed into the house behind Hilmi's home, where his uncle, Atiya Samouni, a 46-year-old farmer, was taking refuge with his two wives and 15 children.

The family say that the house's front door had deliberately been left open so the advancing troops would see there were children inside. According to their account, Atiya, who spoke some Hebrew, walked with his hands up to the open door of the children's room – where the family was huddled – to show himself to the soldiers who were by now in the adjacent living room. His four-year-old son Ahmad followed him, crying out "Baba, Baba" – "Daddy" – and Atiya told him: "Don't be afraid." But as Atiya started to speak to the soldiers he was shot dead. The troops then began shooting into the children's room, to screams from the adults of "katan" and "ktanim" – "little one(s)" in Hebrew. Five of the children were hit; Ahmad was shot twice in the chest, fatally.

Eleven months later, the widowed Zeinat Samouni seems cheerful at first, pressing visitors with a hospitable smile to take one of the round flatbreads she is baking for the imminent Muslim festival of Eid al Adha in the one room she now shares with her seven surviving children. But she cannot stop crying as she describes how they left the house – and the body of her husband – with an older son carrying the heavily bleeding Ahmad to the house of another relative. As evening came, she gave Ahmad, his face now yellowing, bread dipped in water; "It was like feeding a bird," she recalls. The family called an ambulance but were told that it was too dangerous for it to approach the area. Ahmad died in the early hours of Monday morning. "If we'd been able to get an ambulance, I think he would be alive now," she says.

Zeinat's daughter, 10-year-old Amal, carries everywhere in her pocket two worn photographs of her dead father and brother. "I want to look at them all the time," she says, almost a year after they were killed. "My house is not beautiful without them." Amal was also injured and says her head and right eye still hurt. But the psychological trauma for Amal is compounded by the fact that she ran off before her mother and siblings left the house after the shooting. Four days later, she was found, partly buried under rubble, dehydrated and in shock, one of 15 other survivors in the immediate area when Red Cross ambulances were finally allowed to get close enough to bring them out. At school, Amal's favourite subjects are Arabic and English. "I don't know much English, but I like it," says the girl, who wants to be a doctor when she grows up.

Of Atiya's children with his other wife, Zahawa, the most affected is Kannan, now 13, who still limps from the gunshot in his left thigh. Before the war, he was a keen midfielder but he no longer plays football. For him, too, the impact has not only been physical, however. In the months after the shooting, he had nightmares – and was several times found crying in his sleep or shouting, "They want to shoot my father". "He won't go to the toilet on his own," his mother says, adding that he is easily scared – for example, by the sound of gunfire from a nearby Hamas police-training camp. Kannan, too, has a sketchbook – his drawing encouraged by the counsellor who saw him for four months after the war. It depicts the shooting of his father ... children frightened of aeroplanes overhead ... a destroyed Mosque.

Even for the Samounis, however, life goes on. Kannan's family should soon be able to grow six rows of lettuces, peppers and tomatoes on a small plot of land, thanks to a Red Cross irrigation repair project – two wells were destroyed during the military occupation of Zeitoun. It's not enough produce to sell, as they had before, but it's a start. His cousins have also been lent an acre of land, producing olives, figs and vegetables.

Down the road, 22-year-old Rami Samouni, whose brother Hamdi was killed by Israeli forces along with the 18,000 chickens in his coop, is helping to rebuild the destroyed house of his cousin Arafat. The rebuilding is partly funded by the 4,000-euro compensation from the Hamas government earmarked for anyone who lost their home in its entirety, along with $5,000 from the rival Palestinian Authority in Ramallah, discreetly channelled by the UN Development Programme to ensure that no political stigma attaches locally to its beneficiaries. Rami, who will graduate next year with an education degree from Al Azhar University, sees the reconstruction as a metaphor. "You have to have hope. If you consider yourself sick, you're going to be sick. You die if you don't rebuild. Our enemies want us to give up and stop life. We have to move on." Despite his talk of "enemies", Rami says more than once in our conversation that he would accept a solution based on the 1967 borders, with Israel and a Palestinian state existing side-by-side.

Elsewhere, too, there is varied but pervasive evidence of the famous Gazan resilience, even where the damage is worst. A year on, there are few bleaker sights than the rubble still left by last winter's large-scale dynamiting and bulldozing of houses in the northern Gaza districts of Abed Rabbo and Atatra. All but a small minority of those made homeless by the war are renting homes or lodging with relatives. But in Atatra, where much of the destruction occurred during the last days of the war, a few are still living in tents. It seems to be the women here who are holding things together. The house of Arifa abu Leila, the 40-year-old mother of nine children, was destroyed after the family was forced to leave by Israeli soldiers. Now, under canvas, the family has only a hosepipe and a large plastic bowl for washing. She says the family never got the 4,000 euros from the Hamas authorities and muses the reason may be because her husband "used to be in Hamas but then he left it a long time ago". But when her husband Saleh arrives, he denies adamantly that he was ever in Hamas.

Their neighbour, 30-year-old Majda Ghabin, has a significantly more positive reason for living in a tent. With the money he received for his house – destroyed after he was forced out of it, arrested by Israeli troops, and held in Israel for five days during the war – he has rehabilitated his land and invested in carrots, cheaper to care for than the strawberries he used to farm. "I thought it was better to keep working than to find another house," he explains. "That way I can make some money and maybe build a house in the future."

Over in the Abed Rabbo district, east of Jabalya and closer to the Israeli border, the wreckage has even generated its own micro-economy. At 6.30 each morning, Saber Abu Freih and his 60-year-old mother Ghazala arrive at what was once their house, partly to sift – so far in vain – through the rubble to find the jewellery they left behind 11 months ago and partly to load a donkey cart with blasted masonry needed to make new breeze-blocks for small-scale construction. A day's work may bring around 100 shekels (£16) to be shared with his six brothers. "We are clearing the land, collecting stones that will be used for building at the same time," he says cheerfully. "We may only get 10 shekels [£1.60] a cartload. But what can we do?"

Donkey carts like this one head for the nearby Al Shobaki concrete works to be ground down and made into building blocks. Here, the owner, Abdel Salem al Shobaki, succinctly describes the business spiral of his company since the works was started during the height of the Intifada in 2003 as "excellent to good to bad to unbelievable". The "bad to unbelievable" period, which began in mid-2007, reflects the recent political history of Gaza. Having won the 2006 electoral contest for control of the Palestinian parliament, to the consternation of just about everyone, possibly including Hamas itself, the militant Islamic faction rapidly found itself at odds, not only with Israel and the international community, which united in demanding that it recognise Israel as it had consistently failed to do, but also with the Fatah Palestinian President Mahmoud Abbas, who unlike his political co-habitants had long renounced violence and long embraced the idea of a two-state solution. Despite the mounting tensions through 2006, exacerbated by the abduction of the Israeli corporal Gilad Shalit and the ensuing military conflict, a short-lived Saudi-brokered coalition with Fatah was established in February 2007. In June of that year, however, the coalition broke down amid savage internecine fighting on Gaza's streets which was decisively won by Hamas, who seized control in Gaza. Abbas "sacked" the Hamas prime minister Ismail Haniyeh, leaving the putative future Palestine split between the West Bank under his own control, and Gaza under that of Hamas. And Israel imposed a total economic siege which at a stroke halted Gaza's once- vibrant manufacturing and agricultural sectors – which often exported to Israeli trading partners – by closing the borders to all but the inward passage of basic humanitarian goods. It is a policy for which Gaza's population of 1.5m has been paying the price ever since.

Among much else, it left Mr Al Shobaki short of a crucial commodity that he used to import regularly from Israel. Ever since June 2007, he says, he's had "4,000 tons of gravel but no cement". Then two months ago, Mr Al Shobaki – who says he actually pays 15-20 shekels (£2.40-£3.20) for a good cartload of war rubble – was finally able to procure enough cement to start the works going again, thanks to the tunnels through which it is smuggled from Egypt. Gazans are often sceptical about the quality of Egyptian cement – a joke doing the rounds is that a new Hamas-affiliated mosque on Gaza City's beach road has remained uncompleted because the imams are holding out for Israeli cement. But the real problem is the price. Mr Al Shobaki pays 1,400 shekels (£220) a ton for Egyptian cement through the tunnels – compared to the 380 shekels (£60) or so he paid when the crossings were open and it came from Israel. "First I'd like to see reconciliation between Fatah and Hamas," he says, "and then I'd like to see the crossings open. Anyone who says that the Israeli economy and Gaza's are not connected is stupid. They are one economy." Nevertheless, the tunnels have allowed him to restart production – though at next-to-no profit. For most Gazans, they are now the only tangible contact with the outside world.

A large tent city stretches along Gaza's southern border in Rafah, on the old Philadelphi Road which until 2005 was the Israeli-controlled no-man's land between Egypt and Gaza. Overlooked by the watchtowers of Egyptian security rising above the border fence on the south side and the apartment blocks raddled by Israeli shelling from the years of the Intifada on the Palestinian side, the tents protect the entrances to hundreds of smuggling tunnels. These tunnels have served as Gaza's lifeline since June 2007 – and have continued to do so despite the almost-daily Israeli bombing raids during Operation Cast Lead and the 117 deaths of workers, mostly from natural tunnel collapses, in the past year. Now the tunnels are among the Israeli Air Force's retaliatory targets of choice every time a Qassam rocket is launched into southern Israel in breach of the undeclared but – most of the time – effective ceasefire.

Today, as the late-November sun sets over the Mediterranean to the west and a solitary F16 flies high overhead, an earthmover has been at work for several hours beginning the repairs to a tunnel entrance destroyed that morning. Surveying the wreckage, tunnel worker Abu Yusef recalls that he once earned 300 shekels (£48) a day as a gardener in Israel when the crossings were open, and would willingly do so again rather than risk his life for a third of that. "If there was other work, I wouldn't look at a tunnel again," he says.

One of the wrecked tunnel's owners, who answers only to the name of Abu Hassan, estimates that it will cost almost £40,000 to repair the tunnel but it will – eventually – be worth it. Reeling off the goods he transports through the tunnels – "clothes and food, Galaxy chocolate, empty cola bottles, biscuits" – he acknowledges: "It will take me five months to cover the repair costs – before I would have done it in a month." For business is down, largely because the market is saturated by the tunnels themselves. Supervising the arrival of a bamboo consignment and explaining that his tunnel also handles "clothes and sheep", Mohammed, a 27-year-old from Khan Younis, says "it's not like it used to be – there are a lot of products in Gaza. Gaza is full of bamboo."

Every diplomat familiar with the area believes that Hamas is actually benefiting from the tunnel economy created by the siege. It's not just the 10,000 shekels (£1,600) each operator has to pay the Hamas-controlled Rafah municipality, ostensibly for "regulation and health and safety" – but which has not prevented 32 children and young people under the age of 18 being killed in the tunnels this year. One prominent Gaza businessman says that Hamas also brings in consumer goods through its own secret tunnels – the ones Israel believes it uses to import weapons – and then enlists tame traders to distribute the goods and share the profits with the faction. All of which can only make a mockery of the idea that the Israeli-imposed blockade hurts Hamas rather than the civilian population.

Thanks to the tunnels, the shops are fuller than at any time since June 2007, probably making the gift exchanges at this year's Muslim festival of Eid al Adha a little cheerier than last year, with plentiful Egyptian goods – at least for those who can afford to buy. A good imported box of chocolates costs around 150 shekels (£24) compared with just 60 shekels (£10) when it came from Israel, a sweater three times its old price of 50 shekels (£8). But this year's Eid also signified something else: a deep reluctance on the part of many Gazans to wallow in their post-war grief and loss. True, a livestock trader in Jabalya estimated that only 35 per cent of Gazan families would be able to afford one of the traditional sheep for Eid – Sudanese, Libyan or Egyptian this year because imported through the tunnels. But in the vibrant pink feathers and the cloth flowers sported in the hair by perfectly turned-out little girls in the ruins of Atatra, or the parties of young middle-class Gazan women – their heads stylishly covered – crowded into the fashionable seafront Al Deira hotel, you could see a determination to make the best of the festival.

The celebratory mood was certainly reinforced by the hope of an imminent prisoner exchange for the release of Gilad Shalit – and the prospect, whether bankable or not, that it would be followed by Israel's at-least-partial lifting of the siege. But what neither the Eid celebrations nor the constant if costly flow of consumer goods through the tunnels can disguise, however, is the scale and impact of Gaza's de-development. Jadwat Khoudary, one of Gaza's most prominent businessmen, points out that even in "normal" times – without the present dire need for massive post-war reconstruction – Gaza's daily requirement was for around 1,500 tons of cement. The expensive cement coming through the tunnels amounts to around 150 tons, enough for a relatively few individual families to repair their war-damaged homes. And he gives a striking example of Gaza's Alice in Wonderland economics from one of his companies, which unlike many hundreds of others has – just – managed to keep going. It used to manufacture flexible foam, used in mass-produced cushions. But because the chemical raw materials are no longer available from Israel, the firm is now producing just 5 per cent of what it did, cutting and shaping ready-made flexible foam imported through the tunnels. He has laid off more than 200 workers; most of those who found jobs went "either to the Hamas internal police, the [regular] police, the [Hamas-run] Ministry of Works or muncipalities belonging to Hamas. How can I blame them if I cannot pay them salaries?" he says.

We are talking on the eve of the Eid in his popular – but now, in the late afternoon, empty – beachfront restaurant. "Why do you think there's no one here?" he asks. "Because most people are fasting before the Eid. Twenty years ago, only 1 per cent would have done that. Now it's about 90 per cent." Although Hamas had issued no edicts on this issue, Khoudary believes the phenomenon results from messages handed down from the mosques since Hamas came to power. He sees this, and the similar turn-round in those going to the Mosque to pray regularly, as evidence of the Islamic Hamas's "credibility in the street" – one which the winter war of 2008-09 has done nothing to diminish.

Certainly you can see the weakening of secularism on Gaza's streets. More women are covering their heads; there is a greater sprinkling of them wearing the once rarely-seen nakab, the garment covering the whole face except for the eyes. And the greatest internal pressure on Hamas is not Fatah, which has been effectively repressed in Gaza, but from more extreme Islamist groups. To Khoudary, these developments are the function of what he calls "a mental siege" in which lack of contact with the outside world is turning Gaza inwards. To take a single example, there has been a complete halt to the once-steady flow of many hundreds of students a year, often to pursue postgraduate studies, abroad or in Israeli universities. Now Israel has used the closure to stop students even travelling to the West Bank, let alone to Israel or foreign countries. Thanks to the tunnels, says Khoudary, and provided you can afford it, "you can order anything you want in 36 hours. But the mental siege is the most dangerous and harmful siege." He asks why Israel fosters a climate which in the long run will encourage extremist groups "worse than the Taliban". "Israel is so stupid," he says. "They are punishing the wrong people."

No one here has done more to try to ease this "mental siege", within the constraints of total closure, than John Ging, the UN Relief and Works Agency (UNWRA) director of operations and the man responsible for the education and welfare of Gaza's almost one million refugees. Ging, a former Irish Army officer, is a brave man; he was at the UNRWA headquarters when its warehouse was destroyed under Israeli white-phosphorus shelling attack during the third week of Operation Cast Lead. In March 2007, when lawlessness in Gaza was at a peak from which it has now declined thanks to Hamas policing, Ging's UN convoy was ambushed and 18 bullets fired into his armoured vehicle by Palestinian gunmen seeking to abduct him. Two months later, one of his bodyguards was injured when a UN school he was visiting came under fire. Even more extreme elements within Hamas – though never the de facto Hamas government itself – have issued threatening critiques of the highly successful summer games UNRWA ran for 250,000 children, of Ging's warning to UNRWA's Palestinian staff to leave their politics at the door when they come to work, and – most recently – of his bold determination to include holocaust studies in the UNRWA school human-rights curriculum.

Yet what gives Ging his high credibility in Gaza is his tireless championing of the civilian population in the face of what he repeatedly calls the "failed and flawed" policies of isolating it. The end of the war, he says, left Gazans "worse than before" because of the "unfulfilled hope" that it would also mark the end of "that era of collective punishment ... that had been their daily life for so long". For the war had at least finally generated an international realisation "that it was the civilian population that was paying a devastating price not only in loss of life but [also] in their living conditions".

But rather than an end to isolation, Ging says, the traumatised Gazans have seen that "daily life continues to deteriorate and, as they listen and they read of more talk of war, they see the peace process is in further peril".

Ging acknowledges that this is not a "typical human emergency" made visible by "emaciated bodies and an overwhelmed medical service" – though he points out that 80 per cent of Gazans are dependent on food aid, that the medical services are overloaded but somehow coping, and that the water and sewage infrastructure is on the brink of crisis with 80m cubic litres of raw sewage pumped daily into the Mediterranean, 80 per cent of the drinking water below WHO minimum standards and 60 per cent of people with only irregular access to water. Instead, he says, "the problem here is the destruction of a civilised society and what the impact of that will be for the solution to this conflict".

As a man for whom belief in international law is a driving passion, he has sought to combat this trend with a human-rights curriculum in UN schools which is anything but routine, less than a year after a war about which the Goldstone report accused mainly Israel but also Hamas of war crimes. Ging is convinced about the positive response of Gazan civilians. "You only have to talk to them," he argues, to know that "they are not terrorists, they are not violent people. They are deeply civilised people ... not withstanding the provocative nature and injustice of their circumstances."

Their aspirations are not, he says, "vengeance or revenge or violence or destruction – their aspirations are the same as any civilised person on this planet. They want the space to live, basic fundamental freedoms of human rights. They understand the difference between right and wrong and sanctions against those who are in violation of the law, but their claim – which I fully support – is that the innocent should not be sanctioned."

Like Jadwat Khoudary, Ging is fearful however of the extremism that the "devastatingly" negative conditions of Gaza threaten to breed, including among school pupils. "How do we motivate them to achieve their academic potential when their mothers and fathers, brothers and sisters have no job and no prospect of a job? They listen every day to rhetoric, very destructive, which capitalises on their physical experience which is very negative – and tries to attach that to violent activity as being the way out of those circumstances." UNRWA, says Ging, aims to counter that through education. But, he adds, "the most important support is to change the circumstances".

The UN Girls' Preparatory School A in Zeitoun, the very neighbourhood where calamity overtook the Samouni family, helps to illustrate the point. Three of its pupils were killed during the war, 25 injured and many more were made homeless by the destruction. Late last month, it staged a varied day of activities to reinforce another Ging initiative – one that perhaps would not go amiss in many British schools – the Respect and Discipline programme. They ranged from a parade – "We call it 'military' because we want the discipline of soldiers without the violence," explained teacher Soha Sohoor – to a playlet set in court in which teenage girls acted the parts of a female lawyer, teacher, doctor, engineer and housewife successfully defending themselves against a judge's draconian anti-woman ruling. Afterwards, four articulate 14-year-olds discussed issues ranging from domestic violence and the impact of the winter war to the determination of all four to go to university. All said they favoured a two-state solution based on 1967 borders.

Shaima Remlawi, who is learning English, wants to be an international interpreter but also sees herself campaigning for women's rights – particularly against early marriage and fathers who discourage their daughters from completing their education. "I will not marry until I am more than 20," she declared. Afrian Naim wants to be a journalist, "so I can give the message of the Palestinians all over the world." Islam Aqel wants to become both a professor and a "novelist who can write books that everyone can read." And Ahlam Al-Haj Ahmed said: "I want to be a journalist writing about the sufferings of the Palestinian people. But I want to be effective in society, to be a member of the PLC [the Palestinian Parliament], not in Fatah or Hamas but as an independent, so I can tell the others when they are doing well and when they are not doing well." It's hard not to be impressed with these girls, brimming with healthy ambition. But hard also not to wonder – without that "change in circumstances", an end to Gaza's siege, mental and physical – how long it will be before their dreams crash into irrevocable disappointment.

"It's urgent that we change," says Ging. "Because time is against us. A whole generation is growing up."