Israel-Turkey Reconciliation Begins Following Netanyahu Apology

Israel and Turkey took steps to restore ties nearly three years after the deaths of nine Turks on an aid flotilla to the Gaza Strip as the U.S. sought to bolster an allied front in an increasingly unstable Middle East.

Israeli Prime Minister Benjamin Netanyahu apologized yesterday to Turkey for the deaths in a phone call with Turkish counterpart Recep Tayyip Erdogan, according to the Israeli premier’s office and officials traveling in Israel with President Barack Obama, who brokered the thaw between the two U.S. allies.

Netanyahu “expressed Israel’s apology to the Turkish people for any mistakes that might have led to the loss of life or injury” aboard the aid ship raided by Israeli commandos in May 2010, his office said in a text message.

The countries agreed to work on compensation and a non-liability accord, a reference to Turkish legal action against Israeli soldiers, the message said. Erdogan’s office confirmed those discussions in an e-mailed statement. An Israeli official also said the countries have agreed to restore diplomatic ties by reinstating their ambassadors, which wasn’t confirmed in the Turkish statement.

The Turkish-Israeli alliance, based on security ties stretching back decades, has been under strain in recent years. The flotilla incident exacerbated tensions caused by Erdogan’s repeated criticism of Israeli policy, especially the Gaza incursion of 2008. More recently there have been signs of overlap in the countries’ regional interests. Both are calling for the departure of Bashar al-Assad in Syria, and Turkey has distanced itself from Israel’s chief enemy, Iran.

Surprise Rapprochement

The rapprochement is a surprise, and a “significant” step toward improved relations between Turkey and Israel, said Kemal Kirisci, head of the Turkey Project at the Brookings Institution in Washington.

“It came, literally, out of the blue,” for analysts who follow Turkish-Israeli relations, he said in an interview. It’s “a fascinating, spur-of-the-moment production on the part of Obama, and a little credit would go his way.”

Turkish financial markets reversed losses after the announcement of the Netanyahu-Erdogan phone call. The benchmark stock index closed up 0.1 percent, after falling as much as 0.6 percent earlier today. The lira gained 0.2 percent against the dollar, while Israel’s shekel added 0.4 percent to 3.65 per dollar at 5:50 p.m. in Tel Aviv.

Good News

“The ties are positive,” Guillaume Salomon, chief emerging-markets strategist at Societe Generale SA in London, said by phone. “Any ties that bring Israel closer to some of its neighbors is good news.”

Obama said the “moment was right” for the attempt to repair the relationship, and there is more to be done.

“This is just beginning,” Obama said at a news conference with Jordan’s King Abdullah II in Amman, the final stop on the U.S. president’s trip to the region.

Cliff May, president of the Foundation for Defense of Democracies, a non-partisan policy institution in Washington, said hurdles remain to a fuller restoration of the relations.

“It’s positive, but count me pessimistic that it restores the Turkish-Israelis alliance,” he said in an interview.

The apologetic telephone call, May said, was something Obama “wanted for good reason, and that Netanyahu was willing to concede.”

Turkey is a member of NATO, and Israel is the most reliable ally in the Mideast. Increasing tension between the two is awkward for Obama and someone had to move. Erdogan’s response was “reasonably gracious,” May said.

Islamic Leadership

Even so, there remain a set of historical and structural difficulties between the two U.S. allies. Erdogan “sees Turkey in a leadership role in the Islamic world,” May said. “You cannot have very cordial relationships if you aspire to lead the Islamic world in 2013.”

Erdogan, a politician with Islamist roots, accused Israel of “state terrorism” in Gaza and walked out of a discussion with Israeli President Shimon Peres in Davos in 2009. His anti-Israel stance has won him kudos with the public in Turkey, where there is strong sympathy with Palestinians, and across the region. Erdogan was welcomed as a hero when he visited Egypt and other Arab countries after the revolutions of 2011.

Erdogan has made statements equating Zionism with fascism, according to May. “Somebody says Zionism is fascism, or Zionism is racism, they are saying Israel doesn’t have a right to exist,” he said.

Restoring Trust

If Netanyahu believes that’s Erdogan’s true conviction, apologies may not matter and trust might not be restored to any meaningful degree, May said.

Turkey broke off diplomatic ties after the flotilla attack, and in November last year it put four former Israeli officers, including ex-chief of staff Gabi Ashkenazi, on trial in absentia for the killings. Israel said the aid ship ignored a warning to turn aside and that activists attacked soldiers who boarded in order to stop it from breaching the blockade of Gaza.

As diplomatic ties worsened, the two countries have kept business channels open and trade has flourished. It reached a record $4.4 billion in 2011, according to official Turkish figures, and stayed near that level last year. Tourism, though, has slumped as Israelis shun Turkey, once a favorite destination. Visitor numbers have fallen more than 80 percent since 2009, according to the Israeli Embassy in Ankara.

Syria Dispute

The U.S. is seeking to unite its regional allies in applying pressure on Iran to halt its nuclear program. Both the U.S. and Israel have warned they may use military strikes to achieve that goal if diplomacy doesn’t work.

Turkey, which enjoyed improved relations with the Islamic Republic during most of Erdogan’s decade in power, has disagreed with its neighbor over Syria as the region increasingly divides along sectarian lines.

Shiite Muslim-ruled Iran supports Assad, whose Alawite sect is affiliated with Shiite Islam. Turkey is aligned with the U.S. and its main Sunni ally in the region, Saudi Arabia, in backing the rebels fighting to oust Assad.

Before it's here, it's on the Bloomberg Terminal.