About 1.5 million Palestinians rely largely on Israel for supplies of electricty and the fuel for the territory's only 140 megawatt power plant.
But since Hamas took full control of the Strip in June, Israel has reduced its fuel supplies and imposed power cuts in retaliation for Palestinian rocket attacks in the south of the country.
A senior official from Egypt's electricity ministry, cited by the newspaper, said that the Islamic Development Bank had agreed a loan of $32.5 million to finance the project which would link the Egyptian town of El-Arish, in Sinai, with Gaza.
However, the Egyptian foreign ministry on Thursday denied an Israeli newspaper report saying that Egypt would start supplying additional power.
Hossam Zaki, spokesman for the Egyptian foreign ministry, said Israel is seeking to phase out its statutory responsibilities for the Gaza Strip as an occupation force.
At present, a power line from Egypt provides Gaza with between five and 10 per cent of its electricity needs, following a June 2006 agreement with the Palestinians aiming to cut their dependence on Israel.
Al-Ahram said that Sameh Fahmi, Egyptian oil minister, has issued "urgent" directives for his country to provide natural gas as quickly as possible to Gaza.
He was also reported as saying that Cairo would help develop Palestinian gas fields discovered offshore from Gaza, after meeting Omar Kittaneh, the Palestinian Authority's official responsible for energy and natural resources.
At present, Gaza needs 240 megawatts of electricity a day, but is only receiving about 80 per cent of that amount from three sources: the Israel Electric Company, Egypt providing 17 megawatts across the border to the Rafah district in Gaza; and the Gaza power plant that generates some 50-60 megawatts.
The 20 per cent deficit is being managed by burden sharing which could be relieved if Egypt decides to be the main supplier to the Hamas-run territory.
Israeli defence officials say they have worked out a tentative deal for Egypt to become the main electricity supplier to the Gaza Strip; however, plans are yet to be determined.
The agreement that was announced Thursday by the Haaretz, an Israeli daily post, stems from Israeli's desire to cut ties with Gaza. Israel withdrew from Gaza in 2005, but remains the area's main power supplier.