The accord Blair worked out with Israeli Prime Minister Binyamin Netanyahu is expected to be approved by the Israeli cabinet, Haaretz reported Wednesday.
It would prohibit materials that can be used for manufacturing weapons but allow items needed for United Nations-sponsored construction projects.
Israel has agreed to consider stationing European Union as well as Palestinian Authority monitors at border crossings to inspect all goods going into Gaza.
"The policy in Gaza should be to isolate the extremists but to help the people," Blair said Tuesday.
He said the new agreement would keep weapons out of Gaza.
The goal, Blair said, is to eliminate the need for smuggling tunnels in order to get commercial goods into Gaza.
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