Young and old waved Palestinian flags and held up posters of Assaf, raising banners congratulating him on his win in Beirut on Saturday, when he beat off stiff competition from fellow singers from across the Arab world.
Recordings of Assaf's songs blasted out from loudspeakers while crowds thronged his motorcade as it made its way up the Gaza Strip after crossing the Rafah border from Egypt.
Huge crowds also gathered outside his home in the southern city of Khan Yunis.
"We are making him an official welcome," said Gaza's culture ministry director Fakri Judeh, at the head of a Hamas government delegation to receive him.
"Assaf is a Palestinian citizen who has made an outstanding achievement... And we support him," he said.
"We hope he will use his God-given talent to serve the Palestinian cause."
Assaf bent over and kissed the ground as he crossed the border, an AFP correspondent reported, before holding a news conference alongside officials from Gaza's ruling Islamist Hamas movement.
"I hope with all my heart that the division can end, and my message to our Palestinian people is: unity, unity," Assaf said, referring to internal divisions that have plagued Palestinian politics for years.
Hamas and Fatah, which dominates the West Bank-based Palestinian Authority, have been locked in a bitter rivalry which worsened when the Islamists seized the Gaza Strip in 2007.
Yellow Fatah flags, which are rarely seen in Gaza, could be seen flying among the crowds in Rafah ahead of Assaf's arrival.
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