Israeli businesses will be withdrawn from an industrial zone on the border with the Gaza Strip that has been a source of employment for thousands of Palestinians for more than three decades, a high-ranking Israeli official announced Tuesday.

Deputy Prime Minister Ehud Olmert said lack of security in the Erez industrial zone, which has led the Israeli army to shut factories there for most of the past three months, had reached a point where Israeli firms had to be pulled out for their own protection.

"It's an emergency action to save the Israeli plants from collapse," said Olmert, who serves as minister of industry and trade in Prime Minister Ariel Sharon's cabinet.

Palestinians and Israelis alike have said the security situation was intolerable in the Erez zone, where 187 businesses -- including carpentry shops, textile factories, metal works and garages -- employ about 5,000 Gazans. As one of the few remaining places in Gaza where Palestinians and Israelis come into contact, the Erez zone has in recent months become a target for Palestinian attacks. Israeli employers said they feared the Palestinians working for them, and the workers said they were humiliated by body searches before work that took hours to complete.

At least 11 Israelis have been killed in the industrial zone and at the adjacent Erez border crossing since November 2001. The most recent attack, in April, killed a border policeman and wounded three others.

Still, Israeli analysts and Palestinian workers expressed surprise at the sudden decision to close the zone. "We were all shocked by this hasty decision," said Sami Abu Zarifa, an economic adviser to the Palestinian Authority.

When the zone opened in 1970, three years after Israel occupied the Gaza Strip and long before any negotiations between Israel and the Palestinians, the project was hailed as an example of cooperation for mutual benefit. Palestinians from Gaza found desperately needed jobs, while Israeli companies had lower labor costs and taxes than they faced in Israel.

Even after the recent violence, one opposition politician said Tuesday, the industries at Erez were among the few remaining sources of goodwill between Israelis and Palestinians.

"It is too easy to give up so quickly on such a huge project," said Yossi Beilin, a member of parliament who heads the Economic Cooperation Foundation, through which he helped initiate the 1993 Oslo peace accords.

"Who's going to pay for this?" Beilin said. "These people who become unemployed. These people will become our enemies in no time. And we will pay, too."

Palestinian workers, walking past an armored personnel carrier to waiting taxis at the entrance of the industrial zone on Tuesday, said the closure of the nearly 100 Israeli companies there would mean disaster for them.

"They are going to destroy thousands of Palestinian families," said Abu Musa, who owns a clothing factory. "This is an unwise decision."

Olmert did not specify when the Israeli firms would leave, but his announcement came at a time when jobs in Gaza are already scarce. Nearly 30,000 Gazans employed in Israel have lost their jobs since the current Palestinian uprising broke out in September 2000. About 28 percent of Gaza households, which average eight members, have no one employed, according to the World Bank, and about 18 percent of children in Gaza are malnourished.

Sharon's proposal to pull Israeli settlements and troops out of Gaza, which won initial approval from the cabinet on Sunday, stipulates that "the area of the Erez zone will be transferred to Palestinian or international responsibility."

Olmert said his decision to relocate the Erez zone's Israeli companies to Israel did not contradict these efforts. He said that Israel would not demolish the buildings and infrastructure, but leave them to Palestinians.

"There was supposed to have been continuity after the withdrawal," said Zarifa, the Palestinian Authority adviser. "A special mechanism was going to be established to maintain the rights of workers and the rights of businesses for the benefit of all parties."

Oded Tyrah, president of the national Manufacturers Association, said businesses in the zone had lost a total of $8.8 million and that dozens were failing.

Tyrah, who had lobbied to keep the zone open, said he had become disillusioned by events of recent years. "I was naive to believe that we could follow the model of the European Union: first a common market, first businesspeople join forces, then countries join forces," he said.

"It's hard to believe that two countries -- one relatively rich and the other poor, the Palestinians on the other side of the wall -- can live in peace with such gaps in the standard of living," Tyrah said.

But Yosef Alpher, an Israeli strategic analyst, said the government's decision appeared to be motivated by something other than despair. "At a certain level, it is punitive," Alpher said. "Enough of us have been murdered by extremists in Gaza that we're locking the gate and throwing away the key."

He added, "There is an attempt to release Israel of responsibility for the Palestinian population, which is nonsense, because as long as you control all the entries and exit points -- the land and air and sea -- even if there's no Israeli inside, you bear a certain responsibility for the welfare of people in there."

"We are joined together, we can't abandon each other," said a Palestinian tailor in the industrial zone who gave his name as Abu Mohammed. "They need us to do these jobs, and we need them for money."

Special correspondent Islam Abdelkarim in Erez contributed to this report.