An Egyptian official said on Friday people were being allowed to cross the frontier after a 19-day closure.
A first busload of 50 Palestinians drove across the border at about 10 am (0700 GMT) and others will follow during the day, an Egyptian official said from the border.
Some 1500 Palestinians have gathered at the border over the period of the closure and another 2000 have been waiting in hotels in the north Sinai region, officials said.
Israel shut the border on 18 July, saying it was checking an alleged plan to blow up the crossing point.
It is in an area where Israeli forces regularly play a bloody game of cat-and-mouse with Palestinian operatives who Israelis say dig tunnels to smuggle guns and explosives into Gaza.
Rafah is Gaza's only exit to the outside world but it remains under Israeli control and could remain under Israel's supervision even if Prime Minister Ariel Sharon goes ahead with a plan to withdraw from the Gaza Strip.
Backlog at border
Egyptian officials said Israel and the Palestinians agreed that no one could cross from Gaza into Egypt until the Israelis deal with the backlog of Palestinians wanting to go home.
Israel had offered to open an alternative crossing point between Egypt and Israel and then ship the travellers to Gaza.
Israeli says tunnels are used to
get arms and ammunition to Gaza
But the Palestinians rejected that proposal on the grounds that the Israelis would have allowed only 200 Palestinians to cross a day.
Many of the Palestinians have been living at the border for days in communal tents with mats on the grounds. The Egyptian Red Crescent Society has been giving them food.
The United States, Israel's close ally, had said it was deeply concerned about the stranded Palestinians. Earlier this week, Cairo had appealed to UN Secretary-General Kofi Annan to intercede on their behalf, the Egyptian Foreign Ministry said.