Israel and Turkey have normalised relations, ending a six-year rift over the killing by Israeli troops of 10 Turkish activists on a Gaza-bound ship.
Turkish Prime Minister Binali Yildirim said a deal reached on Sunday would see Israel pay $20m (£15m) in compensation.
It will also allow Turkey to send aid to Gaza and carry out infrastructure projects in the Palestinian territory.
Israeli Prime Minister Benjamin Netanyahu said the agreement would help bring “stability” to the Middle East.
Turkey was once Israel’s closest ally in the region, and the two countries share many strategic interests.
The Turkish and Israeli prime ministers announced the deal to restore diplomatic ties at simultaneous news conferences in Ankara and Rome.
Mr. Yildirim said the two countries would appoint ambassadors “as soon as possible” after the agreement is signed on Tuesday.
A “lifeline to Palestinians” would be provided, he added, with the first ship loaded with 10,000 tonnes of aid due to leave for the Israeli port of Ashdod on Friday.
The reconciliation deal between Israel and Turkey will see a return to normal diplomatic relations, but ties are unlikely to have the warmth that they did in the past.
It is Turkey’s growing diplomatic problems – strategic tensions with Russia; difficulties with Europe due to the growing authoritarianism of President Recep Tayyip Erdogan; and above all the failure of Turkey’s Syria policy (which has also soured ties with Washington) – that have prompted this move.
Turkey gains a privileged role in Gaza’s economic development and a lessening of its isolation in a deeply troubled region.
Israel sees an end to its practical difficulties with Turkey and gets assurances about future Hamas activity on Turkish soil.