The agreement on Wednesday would bring a step closer Israel's plans to quit the occupied Palestinian territory this summer.
A deal, in principle, was brokered during a series of talks between visiting Egyptian intelligence chief Omar Suleiman and Israeli officials, among them Prime Minister Ariel Sharon, one senior Israeli source said.
However, other officials stressed that key differences remain outstanding despite mutual agreement that Egypt will take on a greater role in supporting Palestinian security forces.
"Israel and Egypt have agreed in principle that an Egyptian
force would deploy along the border with Gaza, but a certain number of details still need to be ironed out," said the source in Sharon's office.
Israel is prepared to see Egypt and the Palestinian Authority eventually control the border "on condition that they prove their efficiency in the fight against arms-smuggling", the official added.
Under the agreement, Israel would leave Gaza but initially keep forces in the so-called Philadelphi corridor between the Palestinian territory and Egypt, paving the way for joint Egyptian-Israeli control of the border.
But the Israeli official said his government would sanction the deployment of only 750 Egyptian guards given the restrictions of the 1979 Israeli-Egyptian peace treaty that declares the entire Sinai peninsula a demilitarised zone.
"We are on our way to ending the cold peace. We are on a completely different level of relations now"
Israeli Ambassador to Egypt
Both Cairo and the Israeli government must sanction the agreement before arrangements can be put into practice, he added.
Suleiman, Egypt's pointsman in mediating between Israel and the Palestinians, had spent Wednesday locked in talks with Israeli ministers and top Palestinian officials over the Gaza pullout, scheduled to begin in two months' time.
Israeli army radio also reported the envoy as saying that a deal had been struck on the Egyptian deployment.
For their part, Palestinian officials urged Suleiman to press Israel to implement agreements reached at a summit between Sharon and Palestinian leader Mahmud Abbas in Sharm al-Shaikh, Egypt, in February.
Palestian interior minister Nasr Yussuf, national security advisor Jibril Rajub and chief negotiator Saeb Erakat attended the talks in Tel Aviv.
"We asked them the [Egyptians] to help us in the implementation in what was agreed upon at Sharm al-Shaikh including the release of prisoners, the issue of wanted people and the withdrawal of Israeli soldiers from Palestinian cities which have been occupied during the intifada [uprising]," Erakat said.
Erakat also said he and Sharon's chief of staff, Dov Weisglass, met to discuss the Sharm al-Shaikh agreements and to prepare for the upcoming Abbas-Sharon summit on 21 June.
The summit had appeared to mark a major breakthrough in the Middle East peace process, with both Sharon and Abbas announcing an end to hostilities.
Israeli soldiers are due to pull out
of Gaza this summer
But both sides have subsequently accused each other of reneging on agreements such as plans for the transfer of security control in parts of the West Bank from the Israeli army to the Palestinian Authority.
Before the talks, Israeli ambassador to Egypt Shalom Cohen had said there were differences over the size of the Egyptian force, with negotiations focusing on a 750-strong contingent to man the 15km-long corridor.
However, the ambassador expressed confidence that a deal could be struck given a recent sharp improvement in relations.
"We are on our way to ending the cold peace. We are on a completely different level of relations now."