Business was booming for Gaza brick-maker Yasser Qreqea, until neighboring Egypt shut down smuggling tunnels across its border that were funneling arms to militants in the territory and cement and other basic goods to everyone else.

Overnight the price of building materials soared in the Gaza Strip, hitting Qreqea's key customers and, industry sources said, slowing the construction of apartments, roads and houses across the enclave run by Hamas.

"Business is dead and we are the ones losing out," the businessman told Reuters in his factory in the densely-populated Zeitoun neighborhood of Gaza City.

A handful of workers stacked bricks in his already bulging store room, but Qreqea sat idle, waiting for customers.

Egypt said it started flooding and sealing the network of tunnels in February to cut a two-way flow of smuggled weapons that was destabilizing its border area in the Sinai peninsula, where separate groups of militants operate.

Cairo's decision also cut a lifeline to around 1.7 million Palestinians in Gaza, hit by a blockade on a wide range of goods imposed by Israel in 2007 after Hamas took power.

The tunnels had been used to bypass the blockade and smuggle in all kinds of merchandise, including cars, livestock and fuel -- around 30 percent of all goods that reached the enclave, according to some estimates.

A month ago, a tonne of cement cost 350 shekels ($95) in the Gaza Strip. After the tunnel closures, the price rose to 650 shekels before Hamas pressured merchants to bring it down to its current 480 shekel mark.

"I have been speaking to contractors and I understood many of them have suspended building because of the unstable and higher prices of cement," said Ali al-Hayek, chairman of the Palestinian Businessmen's Association.

He forecast "disastrous results for the economy of Gaza and the building sector", unless Egypt reopened the routes.

Hayek said there was a lack of data on the exact size of the construction industry in the Gaza Strip, but estimated thousands of private and public projects were under way before the stoppage.

Gaza's tunnelers told Reuters nearly 60 percent of the estimated 1,000 smuggling routes under the border had been closed.

Tunnel owner Abu Jamal said the Hamas government's taxation of cement and the new price controls had made the smuggling of construction material through surviving routes unviable.

"The Egyptian campaign damaged our business gravely and conditions by Hamas here are forcing us to stop the work. Business is in sleep mode," he added.

Under international pressure, Israel began to ease the blockade in 2010 and allowed international aid agencies to import construction material. It further eased restrictions at the end of last year, but not enough to wean Gaza's businesses from their tunnel supply routes.

Majed Abu Shaaban, a developer building rental apartments, said mounting construction costs would ultimately be passed on to consumers, who would be charged higher rents.

"The solution is to reopen crossings either with Israel or with Egypt. My only concern is to get goods at market prices," Abu Shaaban said.