Housing and Public Works Minister Muhammad Shtayya said Israel should raze the homes of 8500 settlers set for evacuation from July and remove all rubble.
He said keeping the homes would not resolve a Palestinian housing shortage in Gaza, one of the most densely populated places on Earth.
"We are hoping that the houses will be destroyed. Other infrastructure, if they want to leave it, they are welcome," Shtayya said.
"These houses are not suitable for accommodating Palestinian people. The Jewish settlements are bungalows, villas, summer houses, tourist sites and so on. This does not at all suit our development pattern."
Israel plans to withdraw its troops from Gaza and evacuate all 21 illegal settlements this year under Prime Minister Ariel Sharon's plan to "disengage" from conflict with the Palestinians.
Palestinians fear the plan is an Israeli ruse to give up hard-to-defend Gaza while sealing its hold on the West Bank. The Palestinians want both Gaza and the West Bank, occupied by Israel since the 1967 Middle East war, for a future state.
Gaza is one of the most densely
populated places on Earth
Israel's Defence Ministry voiced a preference last week to leave the homes intact despite opposition by settlers.
Washington has urged Israel not to destroy the homes, as it did in a 1982 pullout from settlements in the Sinai peninsula as part of a peace deal with Egypt.
Shtayya said no final decision had been made on the use of the land vacated after the withdrawal, because Israel had yet to inform Palestinians what assets will be left.
"Whatever brings economic return for the people and the economy of Gaza, that is our target," he said. "Housing schemes are the most likely scenario."
Shtayya said the Palestinian Authority was considering building development towns on Gaza settlement lands at a cost of hundreds of millions of dollars to ease severe crowding.
"Whatever brings economic return for the people and the economy of Gaza, that is our target"
Palestinian housing and public works minister
Gaza's housing shortage has been worsened by a high birth rate and Israeli army demolitions that have made thousands homeless during raids, especially on the border with Egypt.
Israel says the raids are aimed at fighting arms smuggling through tunnels built by resistance groups.
New housing, which Shtayya hoped would be paid for largely by international donors, would be in apartment blocks to make efficient use of scarce land in Gaza, a tiny, impoverished coastal strip that is home to 1.3 million Palestinians.
He said the Palestinian Authority hoped to quickly privatise farming operations and possibly other infrastructure left by settlers, but the land itself would belong to the Authority.
Proceeds, including from the possible privatisation of a hotel if left intact, may be put in a fund to pay for housing projects.
The Palestinian Authority will also create a tribunal to judge private Palestinian claims to land in Gaza and four West Bank settlements also set for evacuation, Shtayya said.
"Any person who has a land deed can come forward and claim his land back," he said, adding he hoped the tribunal would be in place before the pullout.
Palestinians expect roughly 95% of Gaza settlement lands will be government property after the withdrawal.