JERUSALEM (Reuters) - Angry Turks mourned activists killed in Israel’s seizure of a Gaza-bound aid ship, as Israel sought Thursday to deflect U.N. demands for an international inquiry by offering its own probe with outside observers.

But a new potential crisis loomed in Israel’s four-year blockade of the Gaza Strip, as Prime Minister Benjamin Netanyahu instructed the military to prevent another pro-Palestinian ship from reaching the territory.

“We will not permit the ship to enter Gaza,” an official in his office quoted Netanyahu as telling a forum of senior cabinet ministers Thursday. Crew of the MV Rachel Corrie say the ship will reach Gaza by Saturday.

Netanyahu said attempts to persuade the vessel, named after an American woman killed by an Israeli bulldozer in Gaza in 2003, to dock at the Israeli port of Ashdod for inspection had been rejected.

He also ordered Israeli forces to exercise “caution and politeness” in handling the ship so as to avoid harm to any passengers, an official in his office said.

Officials said Netanyahu was considering some form of international role in enforcing an arms embargo on Gaza, while letting in civilian goods, but then declined to elaborate. Israel says its blockade is vital to prevent missiles from reaching fighters who will fire them from Gaza into Israel.

President Barack Obama was quoted in a interview with CNN as saying Israel “has legitimate security concerns” about the Hamas-ruled Gaza Strip.

But he also said Israel’s blockade was preventing Gaza’s people from pursuing economic opportunities, CNN reported.

Obama described this week’s flotilla incident as a “tragic situation” but also said it needed to be used as an opportunity to advance the Israeli-Palestinian peace process.

Turkey continued to fume over the killings of nine of its nationals, one of whom also held U.S. citizenship. Thousands thronged an Istanbul funeral for eight of the pro-Palestinian activists who died in Monday’s naval commando raid.

“Turkey will never forget such an attack on its ships and its people in international waters. Turkey’s ties with Israel will never be the same again,” President Abdullah Gul said of once-close relations with a strategic ally.

ISRAELIS PROTEST

In Tel Aviv, nearly 1,000 Israelis, seething at world criticism of what they saw as a defensive act, held a flag-waving protest outside the embassy of Turkey, a nation Israel until recently viewed as a key Muslim ally in the region.

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Many chanted slogans denouncing Turkey’s leaders, and an Israeli television station showed one protester waving a doctored photograph that depicted Turkish Prime Minister Tayyip Erdogan, lately a leading critic of Israel, as Hitler.

Pro-Palestinian activists from the ships seized by Israel, freed after two days incommunicado in Israeli jail, described Monday’s raid as a “bloodbath,” with people on the Gaza flotilla shot dead and desperate efforts to treat the wounded.

Israel says its troops fired only in self-defense after meeting fierce resistance aboard the cruise liner Mavi Marmara.

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Bulent Yildirim, the head of a Turkish charity that organized the flotilla, denied Israeli claims that the activists opened fire first, with guns seized from the Israelis. He said activists had seized guns but threw them overboard.

Israeli military spokesman Captain Ayre Shalicar said the resistance from those on board had been unexpected. He repeated allegations that the activists had fired guns they had seized.

Andre Abu Khalil, a Lebanese cameraman for Al Jazeera TV, said activists initially wounded and captured four Israelis from a first wave that boarded the ship. A second wave of troops tried to storm the ship after the four were taken below decks.

Amid a global outcry which included Turkey recalling its ambassador from Tel Aviv, U.S. Vice President Joe Biden suggested an Israeli probe with international involvement, a proposal embraced by Israeli Foreign Minister Avigdor Lieberman.

“I am in favor of an investigation. We have enough high-level legal experts ... if they want to take on observers from the outside, they can invite observers,” Lieberman said on Israel Radio.

Israel opposes a wholly independent probe after being stung last year by a U.N. inquiry into an offensive it launched in Gaza in December 2008. That inquiry found evidence Israeli forces committed war crimes, which it denies.

In the occupied West Bank, U.S. Middle East envoy George Mitchell said the “tragedy of the last week” must not undermine indirect negotiations he is mediating between Israel and the Palestinians, which he said were making some progress.

In his interview with CNN, Obama, who meets next week with Palestinian President Mahmoud Abbas in Washington, also said he hoped the incident could provide an opportunity to advance recently renewed Israeli-Palestinian peace talks