The demonstration came as a trial opened in the West Bank against Dahlan on charges of corruption, seven months after a Palestinian court sentenced him to two years in jail for defamation.
Dahlan once held the internal security portfolio and headed the powerful security forces in the Gaza Strip, acting as pointman for the Fatah party of Palestinian president Mahmud Abbas -- his sworn rival.
But he fell from grace in June 2007 when Hamas drove Fatah from Gaza after days of fierce street battles.
In June 2011 he was expelled from Fatah's ruling body and also lost his parliamentary immunity following allegations of financial corruption and murder.
In May, a West Bank court sentenced Dahlan, who lives in the United Arab Emirates, to two years in jail -- effectively barring him from ever running in general or presidential elections.
One of his lawyers, Sevag Torossian, described the trial, which has been adjourned to December 28, a "demolition machine" operated by Abbas against Dahlan.
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The trial is a "farce" and a "parody" of justice, said the Paris-based Torossian, who charged that the defence team learned about the case via media reports and have not seen the charge sheet.
In Gaza thousands of protesters rallied outside the Palestinian parliament, carrying portraits of Abbas covered with slogans accusing him of "treason," "corruption" and "tyranny".
"The time has come to put an end to the injustice facing the Gaza Strip and our brothers whose salaries have been cut," Palestinian lawmaker and Dahlan supporter Majd Abu Shamaleh told the crowd.
A spokesman for Abbas's Palestinian Authority security services, Adnan Damiri said the personnel were sacked for violating regulations, not because they are Dahlan partisans.
"We sacked those who violated the rules of military discipline," he said.
The Gaza demonstration came after sources close to Dahlan said the PA had sacked 100 of his supporters among the security forces.
It also reflects lingering tensions between Abbas and Hamas, the de facto rulers of Gaza, despite an agreement between the two to set up a national unity government.
Last month Abbas accused the Islamist movement Hamas of trying "to destroy" efforts to broker national unity after bomb blasts cancelled a memorial for veteran Palestinian leader Yasser Arafat in Gaza.