About 5,000 people, many of them women, schoolchildren and university students, joined the chain outside the town of Beit Hanoun, about four miles from the border.
The crowd hoisted banners in English and Arabic, saying "End the siege of Gaza now", and "Your siege will not break our will".
One of the organisers, an independent MP, Jamal al-Khoudary, said the protesters did not plan violent action. "This is a peaceful event aimed to send a message to the world that the people of Gaza want to live in freedom," he said.
Organisers had hoped to form a chain running the length of the 25-mile Gaza strip, but turnout was well below expectations.
After the protest some 2,000 Hamas loyalists marched to a checkpoint several kilometres away from Erez. However, Hamas police blocked the main road leading to the Erez checkpoint and called on loyalists to obey the law.
Hamas organised the event to protest at chronic shortages of vital supplies in Gaza because of Israeli restrictions. The group said the event would be peaceful and marchers would not reach the border.
Israel took no chances and deployed troops and police to prevent any repeat of scenes that occurred recently at the Gaza-Egypt border.
"I hope that, ultimately, they understand that we are deployed and ready, that this will not be a repeat of what happened in the Philadelphi Corridor (Egypt border) a few weeks back," the deputy defence minister, Matan Vilnai, told Israel Radio.
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Hamas blew open Gaza's border wall with Egypt last month, allowing hundreds of thousands of Palestinians to cross into Egypt and stock up with food, petrol and other basic necessities. But Israel voiced fears the flood of people included Islamist militants intent on carrying out attacks, and Egyptian security forces rounded up hundreds of suspects.
"We don't plan to fool around in this regard," Vilnai said. "We will use measures in the way we deem necessary to prevent people breaking into the state of Israel's territory."
Israeli radio and TV stations devoted their morning news coverage to the event, warning of a mass exodus of Gazans.
"It's absolutely clear that among them will be people with explosive charges, there will be those among them who will be ready at any moment to blow up the border fence," an ultra-nationalist MP, Effie Eitam, told Israel Radio, reflecting a widespread sense of alarm.
"Suddenly there will be a big hole in the fence somewhere, there will be explosions, injured soldiers and the mob will stream into our territory. If that happens it will be the end of the state of Israel."
Last month, Israel tightened the blockade on Gaza, home to 1.5 million Palestinians, limiting supplies of fuel and other goods in response to cross-border rocket fire by militants.
Militants say the attacks are in response to Israeli raids and would stop if Israel lifted Gaza's blockade. Hamas is treated as a political pariah by Israel and the west for not recognising Israel. It has, however, offered Israel a conditional, long-term ceasefire.
Some Palestinians have advocated a strategy of non-violent resistance to Israel similar to the anti-apartheid movement in South Africa, and the worldwide impact of Gazans rushing into Egypt appears to have prompted Hamas to try and replicate such tactics on Gaza's border with Israel.
© 2008 The Guardian