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A 30-ft. drop was the only way into the dark, earthy abyss, and the Palestinian tunnel workers were giggling nervously at the prospect of a foreign journalist going for a plunge. It didn't seem like a good idea. Apart from the descent, there had been Israeli air strikes for the past three days targeting the dense smuggling network that snakes beneath the Gaza Strip's border with Egypt. An Israeli F-16 was circling overhead at that very moment.

I took the ladder. Underground, the space was narrow and damp. Less than a kilometer at half-crawl and I could be in Egypt, popping out at someone's house, shop or farm. Welcome to the highways of the economy of the Palestinians of Gaza. On the outside, on the 3-mile (5 km) fringe of Rafah town, are sandy hills dotted with tents, tarps and bulldozers. Underneath lies what passes for commerce, the surreptitious journey of goods that help keep the territory running.

"There is only one economy — there's a tunnel economy," says John Ging, head of the U.N. Relief and Works Agency in the Gaza Strip. "You have zero exports and zero commercial imports through the [Israeli-controlled] crossing points. All that is allowed in is humanitarian aid and supplies ... In terms of economic activity, there is no economic activity other than the tunnel economy."

When the Islamist organization Hamas took control of Gaza in 2007, Israel all but shut the tiny coastal territory down, imposing a suffocating blockade on Gaza's land and sea borders that keeps the people in and the goods out. That's when Gazans turned to the tunnels. "When the siege was first imposed and the Israelis started to ban entry of fuel, gasoline, etc., the locals here were forced to look for another source," says Khalid al-Hubi, a Rafah shopkeeper who deals mostly in smuggled generators. But, he adds, "The tunnel trade is expensive and the customers have to pay all the charges incurred from Cairo until it reaches their hands in Gaza."

If Gaza runs off a tunnel economy, Rafah is its tunnel town. In Najma Square, in the center of Rafah, the fruits of tunnel labor meet their first customers. Encircling the square are tables of TV sets, fans, blenders and generators; stalls packed with refrigerators, washing machines and ovens — and this is just the electrical side of town. Moving west toward the border, you see more goods: boxes of cigarettes, giant sacks of potato chips and sacks of cement. Then you pass the warehouses that sell the tools used to physically shape the tunnel industry: shovels, rope, pulleys and electrical cords, plus pickaxes, hammers, nuts, bolts and screws in all sizes. The industry of making the tunnels is a booming business on its own.

Rafah's tunnels have been around since the 1980s, but they used to constitute a far more secretive trade. When the blockade started in 2007, a network that had been used primarily to smuggle the weapons of the Palestinian intifadeh was quickly transformed into Gaza's only lifeline to the outside world. Now, tunnel workers say, there are hundreds of tunnels — some weaving right over one another at different depths — that are mostly used to import commercial goods that range from food and baby formula to computers and even cars.

Tunnels vary in size, shape and purpose and are built with varying levels of sophistication. Some are shallow, fragile-looking dirt shafts, with narrow openings; others have wide, wood-enforced passageways. One tunnel, meant exclusively for livestock, descends gradually underground on both the Egyptian and Gazan sides. The workers say it's easier on the cows and donkeys, which would otherwise have to be hauled out with a generator-operated pulley.

For Israel, the tunnels have always been a key political target, first for the weapons and now, perhaps, for their link to the Hamas government, which many people here say profits off the tunnel trade. Last winter, Israeli forces destroyed most of the tunnel network, along with much of the Gaza Strip's infrastructure, during its three-week offensive, Operation Cast Lead. But the tunnel workers got right back underground. "We are just trying to earn a living here. We have no other choice," says Abu Obeida, a potato-chip and clothes smuggler who has been working in tunnels for a year and a half and says he used to be a contractor. Says al-Hubi, the shopkeeper: "Even if Israel destroys all of the tunnels entirely, I'm quite sure that the tunnels will only be dug again and again."

Rafah residents know the tunnel economy is dangerous. Aside from Israeli air strikes, tunnel collapses and accidents like electrocution are regular occurrences. The Gaza Health Ministry says more than 120 people have died in tunnel-related deaths since 2007. But desperation keeps most tunnel workers on the job. Under the blockade, Gaza's unemployment rate has become the highest in the world.

If the crossings opened up, many say all that would change. "It's accurate to say that the economy has been destroyed. All aspects of the commercial sector are in tatters, including the physical infrastructure," says the U.N.'s Ging. "But what we have here is a phenomenal entrepreneurial spirit, and the only thing we need to revive the economy of Gaza is the creation of opportunity, which means lifting the siege."

• Abigail Hauslohner / Rafah
• Blockaded by Israel since 2007, the Palestinian enclave on the sea has not lost its entrepreneurial spirit, tunneling its way to trade and commerce