At least six people have died in gunfire at a rally in Gaza City organised by Fatah to mark three years since the death of Yasser Arafat.
The violence occurred when Fatah supporters began taunting Hamas police and throwing stones, witnesses said.
The Hamas security forces reportedly responded by firing towards the crowd.
It was the biggest rally held by the late president's party since it was ousted from Gaza by Hamas in June after a series of bloody clashes.
Arafat died in Paris on 11 November 2004 and since his death Palestinian politics has been riven by splits, the most violent between the secular nationalist Fatah party and the radical Islamists of Hamas.
Hamas has banned opposition rallies since its takeover of Gaza, and its security personnel were out in force at the edge of Monday's massive gathering.
However, correspondents say any move to prevent a ceremony commemorating Arafat - whose following still crosses factional divisions - would have been widely unpopular in Gaza.
The rally was not only a chance for people to pay their respects to the former leader, but a rare opportunity for a show of Fatah strength in Gaza.
Hundreds of thousands of Fatah supporters, many carrying pictures of Arafat and waving yellow Fatah flags, had gathered in a large square in the centre of Gaza City.
Huge banners showing Arafat in his trademark black-and-white keffiyeh headdress hung from buildings overlooking the square and speeches by Fatah leaders were played over loudspeakers.
Zakaria al-Agha, the Fatah chief in Gaza directly challenged the Islamic movement as he read a statement from Palestinian President Mahmoud Abbas:
"We say to Hamas and these armed militias, stop your crimes," he read. "These crimes will not shake our determination."
The gathering descended into chaos as gunmen began shooting.
Hamas security officials said they fired toward protesters who threw stones at security compounds.
Witnesses said the first shots were fired after crowds started accusing Hamas security forces of being a proxy for Shia Muslim-ruled Iran, chanting the word "Shia" repeatedly.
One man, calling himself Abu Samir, told the AP news agency that he believed that Hamas' security forces had definitely fired first.
"I saw brutality. I saw gunmen shoot at people. I saw them catch a boy and beat him with a stick," he added.
About 100 people were reported to have been wounded in the violence.
Hamas officials have accused Fatah of inciting the violence.
"Before the rally, Fatah militants were deployed throughout the area," Ehab Ghussen, from the Hamas-controlled interior ministry, told AP.
"Fatah is responsible for continued incitement against the Palestinian police, and there was a clear attempt to bring back chaos," he added.
Palestinian President and Fatah leader, Mahmoud Abbas, denounced Hamas's actions as a "heinous crime," AP reported.
And Fatah strongman Mohammed Dahlan, now based in the West Bank, appealed for people not to allow the violence to escalate.
"I call on Fatah in Gaza to continue pursuing peaceful means in confronting Hamas," he told AFP. "I know many people in Gaza don't like this because emotions are running high but popular means are the only way to bring the downfall of this fascist movement."