Turkey expelled the Israeli ambassador to Ankara Friday and suspended all military ties with its one-time ally after a UN report slammed the "excessive" force used in a raid on a Gaza aid flotilla.
A day after leaked extracts of the report into last year's commando raid appeared in the media, Turkey's foreign minister said Ankara had decided on a series of steps as a mark of protest.
And although the report has yet to be released, Turkey's President Abdullah Gul said Ankara would reject it, regarding it as "null and void".
The Israeli government meanwhile indicated it would accept most of the findings, but claimed vindication over its right to impose a blockade on the Palestinian territory which is run by the Islamist movement Hamas.
Turkey pulled its ambassador out of Tel Aviv in the immediate aftermath of the raid and, speaking at a press conference in Ankara, Foreign Minister Ahmet Davutoglu said ties would now be further downgraded.
"The time has come for Israel to pay a price for its illegal actions. This price, first of all, is being deprived of Turkey's friendship," he said.
"All officials above the level of second secretary, primarily the ambassador, will turn back to their country at the latest on Wednesday," he added.
"Second, all the military agreements between Israel and Turkey are suspended."
The foreign minister also said Ankara planned to challenge Israel's right to impose a blockade on Gaza before the International Court of Justice in The Hague, the United Nations' highest court.
The Turkish measures came after a leaked copy of the UN-mandated report criticised Israeli troops for using "excessive" and "unreasonable" force when boarding the ferry Mavi Marmara on May 31, 2010, leading to the deaths of nine people.
The report's release has been delayed several times because of the failure of Turkey and Israel to agree a final version. A UN spokesman said however it was expected to be handed to Secretary General Ban Ki-moon in coming days.
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Davutoglu said Turkish and Israeli officials held four rounds of talks to reconcile their differences and reached a consensus on two draft texts, which were also approved by Israeli Prime Minister Benjamin Netanyahu. But the agreements failed due to a split in the Israeli cabinet, he added.
Turkey has repeatedly said relations will not return to normal unless Israel apologizes and compensates the victims.
Turkey had been Israel's closest ally in the Muslim world, holding regular joint military exercises, but ties had been going steadily downhill since Prime Minister Recep Tayyip Erdogan and his Islamist-rooted Justice and Development Party (AKP) came to power in 2002.
They went into crisis when eight Turkish nationals and an American of Turkish descent died on the Mavi Marmara, the lead ship of the six-vessel convoy, after Israeli special forces in speed boats and dropped from helicopters boarded it in international waters.
"Israel’s decision to board the vessels with such substantial force at a great distance from the blockade zone and with no final warning immediately prior to the boarding was excessive and unreasonable," said the inquiry, led by former New Zealand prime minister Geoffrey Palmer.
It said forensic evidence showed "most of the deceased were shot multiple times, including in the back, or at close range".
It added, however, that the flotilla "acted recklessly in attempting to breach the naval blockade" and the Israeli "faced significant, organized and violent resistance from a group of passengers".
The inquiry called on Israel to make "an appropriate statement of regret" and pay compensation to the families of the dead.
A senior Israeli official indicated Netanyahu's government would accept the findings but with some reservations.
"We will announce our acceptance of the report after its official publication, with specific reservations," the official who declined to be identified told AFP.
The official stressed the report had declared legal Israel's naval blockade of the Palestinian territory, according to the text published in the New York Times.
Turkey withdrew its ambassador to Israel the day after the raid and has consistently said that there can be no normalisation of ties without an apology and an end to the Gaza blockade, which it insists is illegal.
Spokesman for the Hamas rulers of Gaza, Sami Abu Zuhri, said the UN report was "unjust and unbalanced" and would allow Israel "to shirk its responsibilities."