ISTANBUL (Reuters) - Turkish and Israeli teams made progress towards finalising an agreement to mend ties between the two countries in talks and agreed a deal will be finalised in the next meeting to be convened very soon, the Turkish foreign ministry said on Friday.

Turkey was once Israel's closest regional ally but ties collapsed in 2010 over the killing by Israeli marines of 10 Turkish pro-Palestinian activists who tried to breach the Gaza blockade.

Turkish Foreign Ministry Undersecretary Feridun Sinirlioglu, the Israeli prime minister's special envoy, Joseph Ciechanover, and acting chairman of Israel's National Security Council, General Jacob Nagel, met in London on Thursday, the Turkish ministry said in a statement.

"The teams made progress towards finalising the agreement and closing the gaps, and agreed that the deal will be finalised in the next meeting which will be convened very soon," the ministry said.

It did not say what form a deal might take but Ankara has always insisted there can be no normalisation in ties with Israel unless its conditions for ending the Gaza blockade and compensation for the deaths of the activists are met.

Israel allows commercial goods into Gaza daily but limits the transfer of certain items such as cement and building materials as it fears militants will use them to build fortifications.

Officials describe the blockade on Gaza, which is supported by neighbouring Egypt, as a necessary means of preventing arms smuggling by Palestinian militants.

(Writing by Daren Butler; Editing by Robert Birsel)