The release of the Gaza prisoners was held up for a day after Israel's military chief expressed reservations over the move. In the first stage of the release, Israel freed 57 prisoners to the West Bank on Monday.
The Gaza prisoners walked through the terminal at the Erez border crossing and were greeted by a large crowd of relatives.
When ecstatic family members rushed toward the terminal, Israeli soldiers briefly opened fire, wounding two people, witnesses said.
The army confirmed a large group approached the border, and it fired in the air, and then at people's legs, to disperse the crowd. The army said one person was wounded.
As the released prisoners left the terminal, relatives hugged them and carried them on their shoulders.
The prisoners were overwhelmingly members of Fatah, the moderate movement of President Mahmoud Abbas, which was routed by the Hamas militant group in June. The crowd sang Fatah songs and held yellow Fatah flags.
With the November summit approaching, Israel is trying to bolster Abbas in his standoff with Hamas. None of the freed prisoners were affiliated with the Islamic militant group, which Israel considers a terrorist organization. Abbas now rules from his West Bank stronghold and he has little influence over the goings-on in Gaza.
Israel approved this week's prisoner release, which coincides with the Muslim holy month of Ramadan, in an effort to build trust ahead of the summit. But after Monday's release in the West Bank, the Gaza portion was mysteriously delayed for unspecified "technical" reasons.
Israeli officials said President Shimon Peres, who must authorize sentence commutations, did not sign off on the Gazans' release until late Monday.
Security officials said military chief Lt. Gen. Gabi Ashkenazi sent Peres a letter saying it was "immoral" to release Gazans held by Israel while Hamas-linked militants in Gaza continue to hold Cpl. Gilad Shalit. Peres' office would not comment on the affair.
Militants linked to Hamas captured Shalit in June 2006 after they tunneled under a fence separating Gaza from Israel and attacked an Israeli army base. Two other soldiers were killed.
The release of Palestinian prisoners from Israeli jails is for Palestinians key for reconciliation between the people since Israel holds about 11,000 prisoners, and many families have relatives held.