Turkish prime minister warns further sanctions likely after Israel refuses to apologise for 2010's deadly raid on aid flotilla

Turkey has pursued its diplomatic offensive against Israel by confirming it is suspending defence industry contracts and threatening further sanctions, after Jerusalem's refusal to apologise for the deaths of nine activists on board the Mavi Marmara 14 months ago.

The Turkish prime minister, Recep Tayyip Erdogan, said he was considering a trip to Gaza next week, where he would be assured of a hero's welcome. He repeated a warning that Turkish naval vessels would step up activity in the eastern Mediterranean.

Since the release last week of the Palmer report of the UN investigation into Israel's deadly assault on the Gaza-bound Turkish vessel, Turkey has expelled Israel's ambassador, plunging relations between the two countries to a new low. Erdogan has also promised to lobby in support of Palestinian attempts to win recognition as a state at the UN later this month.

Speaking to reporters in Ankara on Tuesday, Erdogan said: "Trade ties, military ties, defence industry ties, we are completely suspending them," although his office later said he was referring to military and defence trade, not overall trade between the two countries, worth $3.5bn last year.

The UN investigation, chaired by the former New Zealand prime minister Geoffrey Palmer, concluded that Israel's naval blockade of Gaza was justified but it had used "excessive and unreasonable" force when it stopped a flotilla of aid ships approaching the Palestinian enclave in May 2010.

The much-delayed report was published on Friday after months of delicate negotiations between Israel and Turkey on the wording of a proposed Israeli apology for the deaths of nine activists – eight Turkish citizens and a Turkish-American – and the payment of compensation to their families. Israel in the end refused to apologise, triggering fresh Turkish anger.

Israel's ambassador and other senior diplomats in Ankara have been ordered to leave by Wednesday, and diplomatic status has been downgraded to the lowest level.

On Monday dozens of Israelis were detained at Istanbul airport in what was perceived by Israel as punitive harassment. Passengers were questioned for up to two hours and some were strip-searched.

Erdogan told reporters he planned to visit Cairo next week, and might go from there to Gaza. "We will make our final decision after consulting with our Egyptian friends," he said.

The Turkish prime minister would be guaranteed an emotional welcome by Gazans, who see him as a champion of their cause. Erdogan has been strongly critical of Israel's blockade of the Gaza Strip and condemned its three-week military assault in 2008-9. A visit would make Erdogan the first world leader to officially visit Gaza since Hamas took control more than four years ago.

Alon Liel, a former senior Israeli diplomat who served in Ankara, said: "Israel and the US will do everything possible to stop a visit. [Erdogan] will be received there as a god."

Erdogan could attempt to persuade Egypt to downgrade its relations with Israel during his visit, Liel added. "Turkey may be ready to invest a lot of money and effort in building Egypt as a regional ally."