Turkey said Friday that it was expelling the Israeli ambassador and suspending military agreements with Israel, signaling a deepening rift between the former strategic allies in the aftermath of last year’s deadly Israeli raid on a Turkish ship leading an aid flotilla to Gaza.

The crisis with Turkey comes as Israel faces strained relations with another longtime regional ally, Egypt, over a deadly border incident last month, and it raises the prospect of Israel’s increasing isolation in the region at a time of tumultuous change.

Turkey announced its move ahead of the publication of a U.N. report that found that while Israel’s naval blockade of the Gaza Strip was legal, its commandos had used “excessive and unreasonable” force when they boarded the vessel, the Mavi Marmara, and killed nine Turks in clashes with activists.

Israel has rejected a Turkish demand for an apology and payment of compensation to families of the dead despite heavy pressure from Washington, which is concerned about the discord between two of its key allies in the Middle East.

Turkey had made the apology a condition for improving diplomatic ties and set the release of the U.N. report as a deadline.

On Friday, Turkish Foreign Minister Ahmet Davutoglu told a news conference in Ankara that the government was downgrading ties with Israel “to the second secretary level” and that the Israeli ambassador and other senior diplomats would be sent home by Wednesday.

The ambassador, Gabby Levy, who is currently in Israel, canceled plans to return to Ankara, an Israeli Foreign Ministry spokesman said.

Israel and Turkey had developed extensive military ties for more than a decade, giving Israel a crucial alliance with a Muslim nation that eased its isolation in the largely Arab Middle East. Turkey, for its part, gained access to advanced Israeli military technology.

Israel supplied hundreds of millions of dollars of military hardware to Turkey, including surface-to-air missiles and drones, and has upgraded Turkish tanks and fighter jets. The Israeli air force trained in Turkish airspace, and the two countries conducted joint naval exercises.

After the flotilla incident on May 31, 2010, Turkey withdrew its ambassador to Israel, suspended joint military exercises and barred Israeli military aircraft from Turkish airspace.

Davutoglu went a step further Friday, saying that “all military agreements have been suspended.”

“The time has come for Israel to pay for its stance that sees it above international laws and disregards human conscience,” he said, according to the Associated Press. “As long as the Israeli government does not take the necessary steps, there will be no turning back.”

In response, Israel reiterated its refusal to apologize, but pledged to work to mend ties.

“As recommended in the report, Israel again expresses its regret for the loss of life, but will not apologize for the acts of its soldiers in self-defense,” an official statement said. “Israel, like any other country, has the legitimate right to protect its citizens and soldiers.”

“Israel recognizes the importance of the historic ties, past and present, between the Turkish and Jewish peoples,” the statement added. “The State of Israel hopes that a way will be found to overcome the disagreement and will continue to work toward that end.”

The U.N. report said that Israel should express regret over the killings and offer compensation payments, and it urged Turkey and Israel to resume full diplomatic relations.

Ties between the two countries frayed after Israel’s war against the militant group Hamas in the Gaza Strip in late 2008 and early 2009 in response to rocket attacks on Israel. The offensive, which left more than 1,400 Palestinians dead, was condemned by Turkish Prime Minister Recep Tayyip Erdogan, whose Islamist-leaning government has moved Turkey away from its traditional alliance with the West.

Turkey has also strongly opposed Israel’s naval blockade of Gaza, which Israel says was imposed to prevent the smuggling of arms to the Hamas-ruled territory. Davutoglu said Friday that Turkey “does not recognize” the blockade and would take “all measures it deems necessary for freedom of navigation in the eastern Mediterranean.”

Meanwhile, Israel is facing tensions with post-revolutionary Egypt, which maintained a steady alliance with its neighbor under the ousted former president, Hosni Mubarak.

The border incident last month that Egypt said led to the killing of five of its security officers drew a threat to recall the Egyptian ambassador to Israel, protests in Cairo demanding the ouster of the Israeli ambassador, and calls for the revocation of the 1979 Israeli-Egyptian peace treaty.

Israel has expressed regret for the incident, which occurred when Israeli troops responding to an attack that left eight Israelis dead chased gunmen who had infiltrated from Egypt’s Sinai Peninsula. But anti-Israel sentiment in Egypt, fueled by Israeli policies toward the Palestinians, continues to simmer.