The border breach was a dramatic protest against the blockade imposed last week by Israel on the impoverished Palestinian territory in retaliation for militant rocket fire on southern Israel.
Crossing into Egypt on foot and on donkey carts, the Palestinians began a buying spree of fuel, medicine, soap, cigarettes and many other supplies that have been cut off during the closure.
The blasts demolished about two-thirds of the border wall erected by Israel after the start of a second Palestinian uprising in 2000.
Egypt has largely kept its border with Gaza closed since Hamas took over control over the area -- largely due to concerns that Hamas-style militancy could spill over into Egypt.
The collapse of the border, although likely temporary, is a boon to Hamas, the Associated Press reported. It briefly eases the international blockade of Gaza and gives the militant-based group possible leverage in demanding new border arrangements.
At the same time, the border collapse will likely raise tensions between Egypt and Israel, which fears militants and weapons will flood Gaza in growing numbers.
The scene at the border on Wednesday was one of a great bazaar, the New York Times reported. Palestinians piled donkeys, carts and motorcycles high with goats, mattresses, chickens, televisions, cement and other goods they had been unable to buy in Gaza.
On Wednesday, shops on the Egyptian side of Rafah had run out of stock within hours of the wall's destruction.
Ibrahim Abu Taha, 45, a Palestinian father of seven, was in the Egyptian section of Rafah with his two brothers and $185 in his pocket.
"We want to buy food, we want to buy rice and sugar, milk and wheat and some cheese," Abu Taha told the AP, adding that he would also buy cheap Egyptian cigarettes.
Abu Taha said he could get the basic foods in Gaza, but at three times the cost.
Palestinian police from Hamas directed the traffic. Egyptian border guards took no action, imposing no border controls for those who crossed.
"Freedom is good. We need no border after today," Mohammed Abu Ghazal, 29, told the AP.
Egyptian President Hosni Mubarak told reporters in Cairo his border guards originally had forced back the Gazans on Tuesday.
"But today a great number of them came back because the Palestinians in Gaza are starving due to the Israeli siege," he said.
No starvation has been reported in Gaza. But many of the 1.5 million residents have faced critical shortages of electricity, fuel and other supplies over months because Gaza has been virtually sealed since Hamas seized control of the territory in June.
"I told them to let them come in and eat and buy food and then return them later as long as they were not carrying weapons," Mubarak said.
Hamas supreme leader Khaled Mashaal said from Syria that Hamas was willing to work out a new border arrangement with Egypt and the rival Fatah faction led by moderate Palestinian President Mahmoud Abbas.
In Gaza, Hamas Prime Minister Ismail Haniyeh called for an urgent meeting with Egypt and Fatah to work out a new shared arrangement for Gaza's border crossings and suggested that Hamas would be prepared to cede some control to Abbas's rival moderate government in the West Bank.
"We don't want to be the only ones in control of these matters," Haniyeh said, speaking from his Gaza City office live on Hamas TV.
The situation puts Israel in a difficult spot. It is concerned about the free flow of militants and weapons into Gaza, but cannot criticize Egypt too sharply, for fear of alienating one of the few Arab countries with which it has a peace treaty."We expect the Egyptians to solve the problem," said Arye Mekel, a spokesman for Israel's Foreign Ministry. "Obviously we are worried about the situation. It could potentially allow anybody to enter."