Israeli-Turkish relations are to resume in the next two weeks, it has emerged.
The developments were reported by the Turkish newspaper, Hurriyet on Monday which suggested talks of reconciliation between the two states were discussed in a cabinet meeting attended by President Erdogan.
Relations between the two states severed in 2010 when a Turkish flotilla delivering aid to Gaza was attacked in international waters by Israeli forces, killing nine Turkish activists.
The deadly raid on the on Mavi Marmara, one of six ships sailing to the besieged territory, was carrying 10,000 tonnes of aid, including medical and school supplies, building materials and generators.
Turkey withdrew its ambassador to Israel and expelled Israeli diplomats from its capital.
An international outcry ensued with a UN statement calling for a "prompt, impartial, credible and transparent" inquiry.
The Israelis used unnecessary and "disproportionate" force and were accused of breaking international law, according to a UN Human Rights Council report.
A US-brokered mediation in 2003 attempted to end the hostility between the two countries however not much progress was made.
A statement from Netanyahu's office said the prime minister "made it clear that the tragic results regarding the Mavi Marmara were unintentional and that Israel expresses regret over injuries and loss of life".
"In light of the Israeli investigation into the incident, which pointed out several operational errors, Prime Minister Netanyahu apologized to the Turkish people for any errors that could have led to loss of life and agreed to complete the agreement on compensation," it added.
Similarly, Erdogan's office responded saying the leaders had "agreed on making arrangements for compensation" to the victims' families, adding: "Our prime minister accepted the apology in the name of the Turkish people."