Israel will stick to its refusal to apologise to Turkey for killing nine of its citizens on a Gaza-bound ship, an Israeli official said on Wednesday, entrenching a position that Ankara said would kill any prospects for reconciliation.

The decision, which the official said Prime Minister Benjamin Netanyahu conveyed to U.S. Secretary of State Hillary Clinton in a telephone call, was made days before the publication of the findings of a U.N. inquiry into the seizure of the Mavi Marmara last year.

"As long as Israel does not apologise, does not pay compensation and does not lift the embargo on Palestine, it is not possible for Turkey-Israeli ties to improve," Turkish Prime Minister Tayyip Erdogan, asked about the Israeli comments, told reporters.

The so-called Palmer report was repeatedly delayed to allow for Israeli-Turkish rapprochement talks amid concern in Washington at the rift between two countries that had been strategic partners in an increasingly stormy Middle East.

Israeli officials, citing advance copies of the report, have said it would vindicate Israel's blockade on the Hamas-ruled Gaza Strip. Turkey, which like Israel had a delegate on the U.N. panel headed by former New Zealand prime minister Geoffrey Palmer, has said it would not accept such a finding.

"If the Palmer Report does not contain an apology, both sides and the United States know what we will do," Turkish Foreign Minister Ahmet Davutoglu told a news conference in Istanbul, without elaborating.

"Israel is facing a choice: deeper relations with Turkey or open a gap with the Turkish state that will not be overcome very easily," he said.

The Mavi Marmara was part of an activist flotilla bringing humanitarian aid to Gaza when it was boarded by Israeli marines on the Mediterranean high seas on May 31, 2010. The marines shot dead nine Turks, including a dual U.S. citizen, during fierce deck brawls.

Netanyahu had voiced regret over the killings, and Defence Minister Ehud Barak, a centrist in his conservative coalition government, has since stirred debate inside the cabinet by proposing Israel offer a diluted apology in hope of restoring ties with what was once a rare Muslim ally of the Jewish state.

"We're firm on not apologising," the Israeli official said.

Asked if Israel might change tack after the Palmer report's publication, the official said: "Why would we do that? We know the report supports our position."

Kurt Hoyer, spokesman for the U.S. embassy, said Washington wanted Israel and Turkey "to look for opportunities to get past the current strains in their bilateral relations." He would not comment on the conversation the Israeli official said had taken place on Tuesday between Netanyahu and Clinton.

In arguing for accommodating the Turks, Barak had said this would help indemnify Israel's navy personnel against lawsuits abroad. The Palmer report would contain some criticism of Israeli tactics aboard the Mavi Marmara, Barak said.

His most vocal opponent in the Israeli cabinet was Foreign Minister Avigdor Lieberman, who noted that Ankara's Islamist-rooted government also demands an end to the Gaza blockade.

Israel calls the measure a precaution against arms reaching Hamas and other Palestinian guerrillas by sea. Palestinians and their supporters describe the blockade as illegal collective punishment.

The United Nations has said it expects to release the Palmer report this month. Israeli officials gave August 22 as the publication date.

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