Expectations that Turkey and Israel will restore normal relations after a five-year rift have raised hopes of speedy progress in talks to import Israeli natural gas, potentially a multi-billion-dollar project.

Israel's once-strong ties to Turkey soured in 2010 when Israeli commandoes killed 10 Turkish activists when storming the Mavi Marmara, a ship in a convoy seeking to break an Israeli naval blockade of the Palestinian territory of Gaza.

Turkey, largely dependent on imports for its energy needs, has ramped up efforts to find new sources of natural gas due to worsening tensions with Russia after Turkish forces shot down a Russian warplane involved in bombing rebels in northern Syria near the Turkish border last month.

Israeli officials said late on Thursday a deal to normalise ties came after high-level bilateral talks in Switzerland. Turkish officials said a final deal had yet to be sealed, but given the progress on key topics, it would not be too long.

Even during the rift, plans to build a pipeline and import natural gas from Israel's vast Leviathan field in the eastern Mediterranean Sea were never shelved, a Turkish source close to the talks told Reuters.

"Even the political authorities did not wish the talks to be suspended. We knew that once the political issue was overcome, the rest of the process would move swiftly," the source said.

Israeli officials largely welcomed the deal, but said Israel should stick to its guns when it comes to security and limiting of activity of some members of the Palestinian Islamist group Hamas living in Turkey. Hamas controls the Gaza Strip.

"The expected agreement, which has yet to be concluded, gives us, on the one hand, what we demanded - a heavy limitation on Hamas activity in Turkey," Zev Elkin, an Israeli cabinet minister, told Army Radio. "We should not fold. We should not concede. We should stay firm on our interests."

Although the lifting of the Gaza blockade, one of Turkish President Tayyip Erdogan's three conditions to normalise ties, is unlikely given that Israel has said the policy is vital for security against Islamist militants, a senior Turkish official said progress has been made on the issue.

"There is a breakthrough regarding the blockade," the Turkish official said. "We are nearing a final deal in talks with Israel. We don't think it will be long."

Turkey's Humanitarian Relief Foundation (IHH), which organised the 2010 aid convoy for Gaza that was stormed by Israeli marines, issued a 13-point statement on Twitter that it was not aware of any deal between Turkey and Israel.

"We think an agreement between Turkey and Israel will be against Turkey, the Palestinian people and the peoples of the Middle East," it said, adding there was no change in its position on the Gaza blockade and Mavi Marmara.

The news of a potential restoration of ties between the two countries came a day after Israeli Prime Minister Benjamin Netanyahu signed a deal giving long-awaited approval for the development of the offshore Leviathan project.

Leviathan, with estimated reserves of 622 billion cu m, will cost at least $6 billion to develop. It is meant to begin production in 2018-2020, although that timetable now looks ambitious, and is to supply billions of dollars' worth of gas to Egypt and Jordan, and possibly Turkey and Europe.

Israeli Energy Minister Yuval Steinitz said normalising ties with Turkey had huge importance both to develop the Leviathan stake and to bring international energy firms back to Israel to look for new gas fields.

"I think that there is a serious, meaningful chance for thawing and normalising relations between Israel and Turkey. I also think that this is proof of the diplomatic value of the gas and the gas plan," he said on Tel Aviv 102 FM radio.

Turkish firms have long been negotiating with Israeli counterparts on a pipeline to carry Leviathan gas. Shares in Zorlu Energy, one of those firms with energy assets in Israel, rallied towards its upper daily trading limit. At 1426 GMT, Zorlu Energy shares were 17.46 per cent higher at 1.48 lira.

Both Zorlu Enerji and a consortium of Turkish firms Turcas and Enerjisa have been in talks with Israel over the price, potential route of a pipeline, partnership structure as well as how to sell the gas, the Turkish source said.

"There's a potential of around 30 bcm gas resource there, of which Turkey could buy 8 to 10 bcm," the industry source said, adding that such a pipeline project would require up to $3 billion in investment.-Reuters