The United Nations Relief and Works Agency (UNRWA) reached an agreement with the Palestinian Authority (PA) and another UN agency to build 700 homes for Palestinians left homeless because of direct Israeli action in Rafah, Southern Gaza.
Rafah has been the hardest hit by Israel's policy of home demolitions.
The PA is to set aside land for the new homes and the UN Development Programme (UNDP) will help pay for them with donations from the Saudi Committee for the Relief of Palestinians and the United Arab Emirates Red Crescent.
"This agreement now allows UNWRA to move quickly to the most important task at hand, that of transferring the concern of the international community for the people of Rafah into bricks and mortar," UNWRA Commissioner-General Peter Hansen said.
UNRWA officials said they would seek additional donations
from other countries to cover the rest of the houses they would need to build to house all the homeless.
The agency said in June it needed nearly $45m to
build homes for 9000 Palestinian refugees made homeless since 2000 by Israeli army raids in Rafah.
Areas of Rafah were in complete
ruin after Israeli operations
Israel says the number of Palestinian homes destroyed by its army and the number of people made homeless is far lower than the figures reported by UNWRA.
It says its forces only destroy buildings used by resistance fighters to hide weapons-smuggling tunnels or as "gunmen's nests" to launch attacks against Israeli forces.
But UNWRA statistics dispute Israeli claims and point to more than 22,000 homeless Palestinians due to Israeli occupation army operations in Gaza since the start of the Palestinian intifada almost four years ago.
Palestinians say home demolitions are a form of collective punishment.
Last May, a three-day Israeli military operation along the Gaza-Egypt border resulted in the demolition of 100 homes, leaving some 1000 Palestinian civilians homeless.
The Israeli occupation army said that it has been searching for, and destroying, tunnels which they alleged where used by weapons smugglers.
Home demolitions have become a contentious issue in Israeli public life.
Israeli Rabbi Arik Ascherman
helps Palestinians rebuild homes
In late May, Israeli Justice Minister Yosef Lapid, a Holocaust survivor, compared the demolition of Palestinian homes to Nazi atrocities against the Jews during the second world war's Final Solution.
"I saw on television an old woman picking through the rubble of her house in Rafah, looking for her medicine, and she reminded me of my grandmother who was expelled from her home during the Holocaust," he was quoted as saying.
His remarks set off a furor in Israel as several politicians rejected the comparison between Palestinians left homeless and the effects of the Holocaust.
Earlier in the year, Rabbi Arik Ascherman also protested against home demolitions and called them a crime against humanity.
Ascherman, a US-born rabbi who heads the Rabbis for Human Rights movement, was prosecuted and charged in court for his activism to prevent demolitions of Palestinian homes, and is currently awaiting a verdict.
He faces up to three years imprisonment.