Egypt says it will open its Rafah border crossing with the Gaza Strip on a permanent basis.
The interim Foreign Minister, Nabil al-Arabi, said the blockade would be eased over the next few days.
He described the support of the previous Egyptian government for the blockade as disgraceful.
The blockade was imposed after Hamas took control of Gaza, four years ago. Israel says it is necessary to stop the smuggling of weapons into Gaza.
The announcement marks a significant shift in the foreign policy of Egypt. Under former President Mubarak the Egyptian government opposed the Hamas administration in Gaza and helped Israel to enforce the blockade.
The blockade of Gaza was a very controversial policy. It was widely viewed as a form of collective punishment of the population of the strip because of the hardships it caused.
The International Committee of the Red Cross said in 2010 that the blockade was a clear violation of international humanitarian law.
The current Egyptian government may only be an interim one, but it is implementing the greatest shift in Egypt's foreign policy for three decades, says the BBC's Jonathan Head in Cairo.
Under Mr Mubarak Egypt strongly upheld its unpopular peace treaty with Israel, and opposed Hamas in the internal Palestinian power-struggle.
The new government, though, has already helped broker a reconciliation agreement between the two Palestinian factions.
The Rafah crossing is the only entry and exit point into Gaza that bypasses Israel.
This decision will alarm Israel, which has already condemned the deal with Hamas, our correspondent says.
Egypt is also talking about repairing its frosty relations with Iran, and upgrading ties with African countries which share its dependence on the waters of the River Nile.
A recent opinion poll showed most Egyptian respondents in favour of ending the peace treaty with Israel - but the new government has said on many occasions that it will honour existing international agreements.