"This is a peaceful and civilised act to let the people express their rejection of the siege and of collective punishment," Jamal al-Khudary, a Palestinian Hamas politician heading the group, said of the human chain.
As the demonstration drew to a close, a small group of Palestinian youths set fire to some tyres close to the northern Erez crossing.
"We are raising a cry to the world for it to act."
Israeli soldiers responded to the action by firing into the air, in the only incident of unrest reported during the protest.
The Popular Committee Against the Siege said that Hamas-controlled schools across Gaza had been permitted to send students to the protest.
Hamas, which took control of the Gaza Strip in June from Fatah forces loyal to Mahmoud Abbas, Palestinian president, supported the protest.
"This is a message addressed to the international community and to the Israeli occupation, and I hope it will seize the opportunity to lift the siege," Fawzi Barhoum, a Hamas spokesman, said.
Israel has repeatedly dismissed claims that it is holding Gaza in a state of siege, maintaining that its operations in and around the territory are designed to prevent armed attacks by Palestinian armed groups.
Ehud Barak, the Israeli defence minister, and Tzipi Livni, the foreign minister, said before the protest that Israel would defend its territory and "stop any infiltration attempt into its sovereign borders".
|Israeli forces have launched several ground|
raids into Gaza in recent months [AFP]
"Hamas is behind activities that place the civilian population on the front lines," they said in a rare joint statement.
"Israel is acting to prevent an escalation but makes it clear that if it does happen the responsibility falls squarely on the shoulders of Hamas."
An Israeli security source said the army was preparing for "all scenarios", and Israeli television reported that artillery reinforcements were placed along the frontier.
Hamas fighters blew open Gaza's southern Rafah border wall with Egypt last month.
Hundreds of thousands of Palestinians crossed over to buy food and fuel in short supply because of the blockade.
The Israeli military killed at least four Palestinians in separate air strikes on the Gaza Strip earlier on Monday.
Hamas and medical officials said three of the people killed were Hamas armed wing members. The fourth man was from the Popular Resistance Committees.
An Israeli military spokesman confirmed the strikes, saying they were targeting armed men who were preparing to launch a mortar attack on Israel.
The Israeli military attacked areas in Khan Yunis, Gaza city and Rafah.
The latest deaths brought the toll to 190 Palestinians killed since Israel resumed peace talks with the Palestinian Authority.