Officials on both sides say a vast network of tunnels is used by smugglers to ferry everything from cigarettes and fuel to machine guns and grenades into the Gaza Strip.
Since Israel's 2005 withdrawal from Gaza, Egyptian forces have been responsible for cracking down on this smuggling, with the discrete assistance of US Army specialists. But Israeli officials have increasingly voiced discontent with Egypt's policing. They strongly dispute its claims of success, saying that Cairo's efforts have improved over time but that there is still much that needs to be done.
"There is a certain improvement in this arena in the last few weeks. The measures have been tightened but the results are still far from satisfying because there are still smuggling tunnels," Israeli Defense Minister Ehud Barak told reporters on Aug. 26.
"Gaza is a big headache for us," says Lt. Col. Yasser Ahmed Ali, commander of the Liaison Agency with International Organizations (LAWIO), an Egyptian military branch that works with multinational peacekeepers in Sinai.
"Since 2005 we have found 452 tunnels," he says. "Maybe we find five tunnels in one day, or 10 or more. Maybe we'll find one on one day and then for the next two days nothing."
The border guards' job has gotten harder, he says, since Israel began blockading Gaza in June 2007, when Hamas gained control of the coastal strip from forces loyal to Palestinian President Mahmoud Abbas and his Fatah movement based in the West Bank.
The blockade has created shortages of food, medicine, and fuel in Gaza, and has been denounced by Human Rights Watch as an "unlawful" form of "collective punishment."
Colonel Ali says that he believes that until the Israeli blockade ends there is only so much Egypt can do to stem the tide of illegal goods going under the border. "Smuggling will never end," he says. "If the Israelis want the number of smugglers and tunnels to decrease, then they should open Gaza up regularly. We need a legal way to make trade OK."
Still, Egypt has been cracking down on the underground smuggling operation. Early last month, Hamas blamed Egypt for the deaths of eight Palestinians when it used water, gas, and explosives to collapse tunnels under the border.
Smugglers used to bring mainly food and medicine into Gaza, he says, but have since moved on to more profitable, and less humanitarian, forms of contraband. Since 2005, border guards have found hundreds of guns, including 220 AK-47s; 18,465 kilograms of TNT; thousands of bullets; stashes of heroin, marijuana, and hashish; 16,821 packs of cigarettes; and Egyptian, Israeli, Jordanian, American and Saudi currency worth $149,455.
"The smugglers are traders," he says. "They smuggle the most high-profit, economically valuable goods like drugs and cigarettes."
Despite the challenges, Ali says the border guards have brought smuggling under control. He claims "there has been no smuggling of weapons or explosives into Gaza in all of 2008."
Israeli officials strongly dispute that claim, and independent analysts say it is exaggerated.
They point to a report released in April by the Intelligence and Terrorism Research Center (ITRC), a think tank with close ties to the Israeli defense establishment. The report says Hamas has exploited "the helplessness and inefficiency of the Egyptian security forces" and is using the tunnels to stock "a military buildup."
Reuven Erlich, ITRC director, doubts that Egypt has had much success against smuggling, but acknowledges they have been doing more since June.
"They may be making extra efforts now but so far they have not succeeded in reducing the scale of smuggling," he says. "Egypt needs to do more intensive intelligence and operational activity along the border between Sinai, Egypt, and the Gaza Strip."
An Israeli official with knowledge of border issues, who spoke on condition of anonymity, said there was no way Israel could open Gaza's borders while weapons and drug smuggling continues.
"The Egyptians say there are no weapons and ammunition being smuggled, and if that was true then everything would be OK, but that is not the case," says the official. "We know they are still smuggling weapons and narcotics. They smuggle whatever brings money to the people running the tunnels and to Hamas."
Ezzedine Shoukry, the director of the Arab-Israeli Project of the International Crisis Group, says that as long as the demand for smuggled goods is there, then smugglers will find a way to meet it.
But Mr. Shoukry argues that politics may play an even more important role than economics. He says that as long as the international community isolates Hamas, it has little choice but to seek legitimacy through force of arms.
"Without a political process that includes Gaza, what the international community is doing is creating a situation in which Hamas needs military capability to maintain their power and authority," he says.
"The main reason that Hamas took over Gaza was its military power, and the only reason that Israel does not invade and reoccupy Gaza is they know they would suffer serious military losses," adds Shoukry.
But in the Egyptian half of Rafah, smuggling is mostly about dollars and cents.
Standing in a small grove of olive trees in the backyard of an apartment building in downtown Rafah, a team of border guards surveyed a tunnel entrance discovered a day earlier next to a goat pen.
A narrow hole opened in the dry earth, surrounded by young soldiers with machine guns. An old woman screamed at them from under a nearby tree, while military attack dogs sniffed at the goats.
Sometimes local people get angry at the border guards when they discover their tunnels, says Ali, the LAWIO commander, because people whose land host tunnel entrances get a cut of the profits.
And in a poor town like Rafah, smuggling can pay handsomely. "The owners will rent them to anybody," says Ali. "They can rent them for $10,000 an hour if they are smuggling something big, like guns, bombs, or drugs. It is a business."