They said residents of the border town of Rafah have already handed over 62 homes to the army, a first step for a target of 880 houses where some 10,000 people live.
Tanks and armored vehicles sealed off all of Rafah, while bulldozers stood by to demolish the houses, said officials, as well as witnesses who refused to give their names for fear of reprisals.
Residents of the border area, in the northeastern corner of the Sinai Peninsula, say they were given short notice to pack up and leave, and that while the government has promised financial compensation they haven't received any money yet.
"People are in a state of shock but helpless at the same time," said Ahmed Etaa, who lives in nearby Sheikh Zuweyid town and who is in touch with friends packing and leaving their homes in Rafah.
Egypt declared a three-month state of emergency and dawn-to-dusk curfew there and indefinitely closed the Gaza crossing, the only non-Israeli passage for the crowded strip with the world.
The corridor will eventually be monitored by surveillance cameras, and feature a water-filled trench that will be 40 meters wide, 20 meters deep and run all along the border to the Mediterranean Sea, officials said.
Officials said that Israel had proposed the water barrier in the past under ousted Egyptian autocrat Hosni Mubarak, but the idea had been shelved. Mubarak had also planned a separation barrier along the border, but stopped it after large protests.
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