The Israeli military said Palestinian fighters had attacked a military post close to the crossing with a grenade and automatic gunfire.
"Hamas must decide what their objective is - is it power, is it Israel's destruction, or is it peace for the Palestinian people?
Chris, Stockholm, Sweden
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"The casualties are from the Palestinian fire," Major Tal Levram, an army spokesman, said. "The incident is primarily a Palestinian terror attack on Palestinians."
Abu Mujahid, a spokesman for the Popular Resistance Committees, said two of his group's men fired at Israeli soldiers and they fired back, hitting civilians.
About 500 Palestinians have been camping out at Erez since Hamas fighters took full control of the Gaza Strip.
Many are seeking refuge in the West Bank to escape retribution after factional clashes killed more than 110 people.
"My family fears Hamas retribution operations, that armed and masked men will arrest us and gun us down," Amr, a civil servant at the crossing point, said.
Hamas fighters have erected a roadblock near the terminal to stop Gazans reaching the crossing and to look for Fatah officials trying to escape.Security concerns
Israel has let very few Palestinians through the crossing citing security concerns.
"The problem today is because we don't have policemen on the other side," Shlomo Dror, an Israeli military spokesman, said. "The people who come, we don't know if they are terrorists or who they are."
Other crossings out of the Gaza Strip, the cargo crossing at Karni and the Rafah crossing into Egypt, also remained closed on Monday.
|More than 500 Palestinians are waiting at the |
Erez crossing hoping to enter Israel [AFP]
The terminals are crucial to the territory's economic survival but there is little hope they will be reopened soon.
Israel has ordered cargo shipments bound for the Gaza Strip blocked, the Israeli customs authority said in a letter obtained by the Reuters news agency.
But officials said shipments may be allowed to go through at a later date.
A spokesperson for Israel's tax and customs authority said the order was issued because crossings into Gaza have been closed, calling it "a technical step, not a policy decision."
Worried Gazans have stocked up on essentials, fearing the border crossings will remain shut but Hamas have pledged to reopen them as soon as possible.