The culling began after the World Bank offered to donate $2 million to compensate the farmers, who had been reluctant to put down their chickens without compensation.
Israeli agriculture officials have helped their Palestinian counterparts with equipment and professional advice.
The chickens would be poisoned and their carcasses dumped in deep pits, officials said.
"There will be compensation, but I hope it will be fair and enough to make up for my loss," farmer Samir al-Masri said.
Israel has put down more than one million turkeys and chickens over the past two weeks after an outbreak of the virus at six farms, most of them near the Gaza Strip. It says the virus has been contained on its side of the border.
Egypt has also said a teenager in the Nile delta district of Kafr al-Sheikh with bird flu symptoms could be the fifth person in the country infected with the H5N1 strain.
The 18-year-old girl was in stable condition, said Nasser Kamel, spokesman for the government's anti-bird flu committee.
Bird flu can infect people who come into close contact with infected poultry and has killed about 100 people since late 2003.
Experts fear the virus will mutate into a form that passes easily from person to person, sparking a pandemic in which millions could die and which could cripple the global economy.