Israeli authorities have allowed shoes and clothes into the Gaza Strip for the first time in three years of the tight economic blockade of the Palestinian territory. But Gazan businessmen say much of the shipment is ruined and their spiralling costs will never be recovered.

Ten containers were allowed into Gaza on Sunday and a further 10 today of goods have sat in storage for three years, costing their owners thousands of pounds in fees and in some cases arriving so riddled with damp that the items are unsellable.

Israel has imposed a full economic blockade on Gaza, which it calls a "hostile entity", since the Palestinian Islamist movement Hamas seized control in June 2007. Nearly all exports and imports are banned and only a tightly limited supply of food and medical aid is allowed in.

The result has been the collapse of private industry in the Palestinian territory, leaving in disrepair the thousands of homes damaged or destroyed in Israel's war last year and allowing the flourishing of a Hamas-regulated smuggling economy through tunnels into Egypt.

The Israeli government says its economic blockade of Gaza will remain until Hamas halts violence, recognises Israel and accepts previous peace agreements. Egypt also keeps its one crossing into Gaza largely closed and has started building a steel underground wall to curb smuggling.

Hamza Abu Helal, who has run a trading business in Gaza City for 37 years, finally received a long-overdue delivery across the Kerem Shalom crossing with Israel on Sunday. But when he opened the container and started going through the yellow boxes of his 13,000 men's shirts – marked "Al Helal, Italy Style" – he found around 80% of the garments were ruined by damp. Now the spoiled shirts are piled in a heap in an alleyway next to his warehouse.

"What can I do with this? I'll throw it all out and burn it," he said. "I can't bear to look at it."

It was one of three containers of clothes still outstanding from a business trip he made to China three years ago. Since then the garments have been in storage at a warehouse in southern Israel, awaiting permission to enter Gaza. This one container of shirts cost Abu Helal £28,000 to buy and ship from China and another £8,000 to store in a Israeli warehouse. There was no insurance cover.

Worse still, he bought another six containers full of clothes last year after being encouraged by an international donors' conference at which billions of dollars were pledged to the Palestinians following Israel's war in Gaza.

"They promised this money will come to Gaza and I believed the crossings would open and would allow us to make up our losses," said Abu Helal. "But nothing came in at all."

Abdullah Huwaiti, another trader, received two small containers of shoes. They were not as badly damaged as his neighbour's shirts, but he estimated he would make back just a quarter of his costs. He has another six containers still undelivered. "The economy here is destroyed," he said. "What is the fault of us businessmen? We're not involved in politics. It's the fault of the politicians, not us."

It will take at least three months to clear just the three-year backlog of shoes and clothes, according to Raed Fattouh, a Palestinian economics ministry official. Most other goods are still banned, including construction materials. Some glass has been allowed in recently, but no cement.

The Israeli list of permitted commercial and agricultural items runs to 114, Fattouh said, an increase on the 52 to 55 items allowed in a few months ago. Medical supplies are approved separately.

"There has been a very tiny change, starting in late 2009," Fattouh said. Some carnations and strawberries have been intermittently allowed out.

Despite the slight easing of the blockade, shipments into Gaza are still a long way short of the 400 trucks a day that were envisaged under an agreement between Israel and the Palestinians brokered by the US in late 2005. Meanwhile, shops in Gaza are filled with more expensive and lower quality goods smuggled through the tunnels from Egypt, on which Hamas levies its own charges.
Border controls

Israel has imposed a tightening restrictions on the 1.5 million Palestinians in Gaza since pulling out in mid-2005.

The restrictions worsened after Hamas won Palestinian elections in early 2006 and then became a full blockade a year later, after Hamas seized full security control of Gaza.

Nearly all imports and exports to and from Gaza are banned, apart from a very limited amount of food and aid. Students have been prevented from travelling abroad to study and patients face great difficulty entering Israel for medical treatment. Egypt has also kept its crossing into Gaza largely closed.

The UN secretary general, Ban Ki-moon, and other international leaders have described Israel's policy as "collective punishment", which is illegal under international law. But Israel has shown no signing of bowing to pressure to lift the blockade, saying Hamas must first recognise Israel, halt violence and accept previous peace agreements.

A backlog of clothes and shoes are being allowed in for the first time in three years, but construction materials are notably still largely forbidden at a time when thousands of homes damaged and destroyed in last year's war need repair.

The UN's Ban was in Gaza last month and said Israel's policy was "not sustainable"," "wrong" and caused "unacceptable suffering."