GAZA CITY—Tens of thousands of Palestinian protesters massed Friday along the Israeli border, as Western officials warn the economic situation in Gaza is at breaking point, raising the risk of civil unrest or even war.

At least 15 Palestinians died in clashes with the Israeli military and more than 1,000 were injured, Palestinian authorities said. Crowds rolled burning tires and threw stones and fire bombs at Israeli soldiers, the Israeli army said.

Friday’s demonstrations called for a right to return to homes in what is now Israel. But Gaza’s flat-lining economy—battered by fighting, blockades and an intensifying power struggle between Palestinian factions—has further inflamed tensions.

Growth is near zero, unemployment is 44% and consumer spending has plummeted in this strip of Palestinian territory, sandwiched between Israel and the Mediterranean Sea.

Gazans live with three to six hours of electricity per day due to shortages and more than half of the strip’s nearly two million residents receive food assistance from the United Nations.

The economic situation is so dire that some warn it could lead Gaza’s rulers, the extremist group Hamas, to start a war with Israel. U.S. and Israeli officials believe Hamas started a conflict with Israel in 2014 in part because Israeli and Egyptian officials squeezed the group economically.

Gaza is on the brink of “total institutional and economic collapse,” Nickolay Mladenov, U.N. special coordinator for the Middle East peace process told the Security Council last month. “This is not an alarmist prediction…it is a fact.”

Israel strictly limits the flow of goods and people in and out of Gaza. And an internecine struggle between Hamas and the Palestinian Authority, on which it depends for funds, has made the situation worse.

The authority’s president, Mahmoud Abbas, last year began cutting salaries of Gaza’s 40,000 doctors, teachers and other public sector employees in a bid to pressure Hamas to surrender control of Gaza’s government. The Palestinian Authority says it plans further reductions.

Despite the rift between Hamas and Fatah, both factions blame their economic situation on Israel. Israel jointly manages security with Palestinian forces in the West Bank but remains in conflict with Hamas, which Israeli officials say spends tens of millions of dollars a year on its military.

For Mohammed Sebakhy’s falafel business, the impact of all the economic dislocation has been devastating. Today, he says, he is lucky if he can ring up sales of $50 a day—half the amount he made on an average day last year.

Falafels, fried balls of chickpeas, are ubiquitous in Gaza, where it is one of the most affordable foods, but fewer people can afford to buy even this modest fare. As patrons dwindle, Mr. Sebakhy says he has discounted his falafels, laid off one worker and cut the wages of another.

“We are so down,” said the 24-year-old Mr. Sebakhy, wearing a tattered sweater in his dimly lighted shop. “I don’t know how long we can survive.”

Due to the depressed economy and weak consumer spending, the number of trucks crossing into Gaza from Israel fell to 8,205 in February down from a monthly peak last year of 12,183 in January 2017, according to Tel Aviv-based nonprofit Gisha.

U.N. and World Bank officials also are now worried that U.S. cuts to refugee body Unrwa to encourage reforms threaten the jobs of thousands of aid workers in the strip.

The organizers of Friday’s protest had planned the event for weeks.

“This is a message to Trump that our people will not give Jerusalem or Palestine,” Hamas leader Ismail Haniyeh said at the event, referring to the U.S. leader’s decision to recognize Jerusalem as Israel’s capital. “This march is the beginning of the return to all of Palestine.”

More than one million Gazan residents are refugees from the 1948 and 1967 Arab-Israeli wars, according to the U.N. Israel has said that it won’t allow significant numbers of Palestinians to return to Israel as it would threaten the state’s Jewish majority.

Israeli officials this week became increasingly concerned about the scale of the protest, deploying troops to the border and warning Gazans that soldiers would use live fire on those breaching the security fence.

“To Gaza inhabitants, Hamas is gambling with your lives,” Israeli Defense Minister Avigdor Lieberman tweeted in Arabic on Friday. “You go close to the fence, you put your life in danger.”

International pledges amounting to $3.5 billion to reconstruct the strip began boosting the economy in 2015 and 2016, but delivery of that cash slowed last year, according to the World Bank. Aid for reconstruction fell to $55 million last year from $400 million in 2016, while donors until this month had disbursed only $1.88 billion of the total pledges, the bank says.

Mr. Abbas and Hamas have been in talks on returning control of the strip to the Palestinian Authority, which is dominated by the Fatah party, but negotiations broke down in recent weeks over a refusal by Hamas to disarm its militant wing.

With talks stalled, some analysts say Hamas is likely to continue to promote armed resistance against Israel, even as it redirects some income from arms procurement to support the economy and govern Gaza.

Hamas “will continue in investing money and resources in their military capabilities,” said Kobi Michael, senior research fellow at the Tel Aviv-based Institute for National Security Studies. “They haven’t neglected the idea of armed resistance against Israel.”

Hazem Qassem, a Hamas spokesman, said the group doesn’t want a war with Israel but that the economic situation could lead to an explosion of anger among Gazans. A spokesman for Mr. Abbas didn’t respond to a request for comment.

With the prospect of another conflict looming, Israeli and U.S. officials are scrambling for ways to ease strains on the strip. White House adviser to the Israeli-Palestinian peace process, Jason Greenblatt, convened a meeting earlier this month in Washington with Israel and 20 international donor states and discussed potential aid projects.

“Israel is trying to facilitate international aid to avoid an escalation in violence and keep stability in the area,” an Israeli official said.

For ordinary Gazans, the threat of conflict takes a back seat to finding enough cash to eat. Mr. Sebakhy, the falafel vendor, said Friday he didn’t plan to go down to the demonstration.

“It is dangerous there,” he said. “And I can’t leave my shop.”

One of his customers owes him 400 shekels for the past few months. And one family in this neighborhood stopped walking past his shop as they are too ashamed to owe him money, he said.

“I can’t be here knowing there’s a family that can’t afford breakfast or dinner,” Mr. Sebakhy said. “I’d love to see people getting paid again.”

Write to Rory Jones at rory.jones@wsj.com

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