Israel has offered Turkey $20 million in compensation to the families of those killed and wounded in its botched 2010 raid on a Gaza-bound flotilla, Haaretz newspaper reported on Monday.
Citing unnamed Western diplomats briefed on ongoing negotiations with Ankara, the daily said Turkey had yet to respond to the offer.
Bulent Arinc, Turkey's deputy prime minister, said major progress had been made but that a few points still had to be ironed out.
"We are not yet ready to sign... but a solution is close," Arinc told reporters.
Once-close relations between the two nations fell apart after Israeli commandos killed nine Turkish nationals during a botched pre-dawn raid on a six-ship flotilla seeking to break Israel's naval blockade on Gaza in May 2010.
The assault provoked a major diplomatic crisis between the former regional allies, with Ankara demanding a formal apology and compensation for the families of the victims.
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Talks finally began in March 2013 after Israel extended a formal apology to Turkey to get relations back on track following top-level intervention by US President Barack Obama.
The talks stalled for several months but were revived in December when Israeli negotiators travelled to Istanbul and Turkey lowered its demands for compensation, Haaretz said.
Western diplomats quoted by the paper said Ankara had demanded $30 million, but Israel was initially willing to give only $15 million.
Prime Minister Benjamin Netanyahu later decided to up Israel’s offer to $20 million, with an extra $3 million available "if necessary to secure an agreement", the paper said.
The funds will not be paid directly to the families of the dead and the wounded but will be deposited in a humanitarian fund and distributed to them in accordance with defined criteria, it said.
Netanyahu's office refused to comment on the report.