Turkey and Israel are set to reopen embassies in each others’ capitals, ending four years of strained ties between the countries, a Turkish newspaper reported Thursday.

Israeli negotiator David Meidan met with Turkish national intelligence head Hakan Fidan in Ankara Monday and came to the breakthrough conclusion, Today’s Zaman reported.

The paper said the two also discussed a visit by Turkish Prime Minister Recep Tayyip Erdogan to Israel in the coming months.

However, a senior Israeli official denied the Zaman report.

“These reports are incorrect. We are not aware of anything new,” the official said.

The meeting came amid reports that Israel and Turkey are close to signing a reconciliation deal, restoring ties that were cut in 2010 after a deadly Israeli commando raid on a Gaza-bound flotilla of ships.

On Wednesday, Turkish Foreign Minister Ahmet Davutoglu told AFP that progress on a final deal had been made.

Turkish media reported that as part of the deal, Israel would pay $21 million in compensation, and allow Turkey to be the exclusive provider of humanitarian supplies to Gaza.

On Thursday, the Israeli army unit tasked with coordinating civilian activities in the Palestinian territories said Defense Minister Moshe Ya’alon had okayed Turkish construction on a hospital in the Gaza Strip. Under the agreement, Turkey will be allowed to send in 500 trucks of construction materials and 70 trucks of electrical and communications equipment for the hospital.

Israel’s Foreign Ministry, which is on strike, could not offer any comment.

“Our embassies is closed, not informed. There are no diplomatic cables, so I can’t tell you anything,” an official said.

Nine pro-Palestinian Turkish activists were killed in the 2010 Israeli raid, sparking a major crisis between the long-time regional allies and compensation claims from the victims’ families.

In the ensuing diplomatic tussle, “the gap between the expectations of the two sides is closing,” Davutoglu said.

“Progress has been made to a great extent, but the two sides need to meet again for a final agreement,” he said.

Sticking points have been the amount of compensation and the legal status of the deal, but Turkish Deputy Prime Minister Bulent Arinc said earlier this week that an agreement would soon be signed.

He said that after Turkish local elections Sunday — seen as a major electoral test for Erdogan — “our first job will be making sure the compensation is bound by a legal document.”

Davutoglu also said that “an answer is expected from the Israeli side” to Turkey’s demands. “It is our preference, whether it will be before or after the elections… We do whatever is right at the right time.”

Navy vessels escort the Mavi Marmara to the Ashdod port on May 31, 2010. (photo credit: Kobi Gideon/Flash90)

Navy vessels escort the Mavi Marmara to the Ashdod port on May 31, 2010. (photo credit: Kobi Gideon/Flash90)

Turkish senior diplomat Feridun Sinirlioglu was in Israel in February to discuss the terms of an agreement, aimed to normalize relations between the Jewish state and its once closest Muslim ally.

The May 2010 Israeli raid on the Turkish ship the Mavi Marmara in international waters en route to Gaza sparked widespread condemnation and provoked a major diplomatic crisis between the two countries. Israel said its soldiers were attacked with deadly weapons while trying to enforce a sea blockade on Gaza.

Ankara expelled the Israeli ambassador, demanded a formal apology and compensation, and an end to the blockade on the Gaza Strip — which is ruled by Hamas, a Palestinian militant group.

Talks on compensation began a year ago after Israel extended a formal apology to Turkey in a breakthrough brokered by US President Barack Obama.

In February, Erdogan said there would be no agreement without a written commitment by Israel to lift its restrictions on the Gaza Strip, a comment that led Israel to accuse him of blocking a compensation deal.

Turkey’s foreign minister declined to comment on whether new ambassadors would likely be appointed as soon as an agreement is signed.

“What’s important is to reach an agreement,” Davutoglu said, speaking in his central home province of Konya. “The steps to be taken will be discussed when the agreement is made.

“I can say there’s a positive momentum and a process in a positive direction.”

Raphael Ahren contributed to this report.