Israel set up the Karni passageway following the signing of the agreement known as "Gaza and Jericho First" in May of 1994, subsequently made part of the Oslo agreement. This was built on an unused runway, previously utilized by the British army, on the Palestinian side of the border, and adjoining the border fence.

Until March of 1996, most of the commerce between Israel and the Palestinian Authority was concentrated in the Karni passageway. Goods were being transferred to and from the border by Israeli and Palestinian trucks.

On the Israeli side, the terminal was managed and operated by the IDF (Israel Defense Force) while the Palestinian's Security Forces ran the terminal on their side of the border.

In March of 1996 the passageway was closed.  The decision was made after a Palestinian suicide bomber hiding in an Israeli truck, which was driven by an Arab Israeli driver, successfully infiltrated Israel. After approximately 90 min, the terrorist activated a powerful explosive on the crowded Dizengoff St. in Tel Aviv. The attack cost the lives of ten people and injured many more.   

The terrorist attack, coupled with Palestinian unwillingness to tighten security checks, let to the governmental decision, initialized by Defense Minister Yitzhak Mordechai and IDF commander in chief Amnon Shahak, to transfer the daily management and operation of the Palestinian Autonomous passageways to a specialized civilian body.

In addition, it was decided to reassign the Karni passageway to an Israeli controlled territory, where security guidelines concerning checks of merchandize could be implemented, excluding the Palestinian Authority any practical ability for challenging the process.