Turkey says it is expelling the Israeli ambassador and cutting military ties with Israel over the country's refusal to apologise for last year's deadly raid on a Gaza-bound flotilla.

The foreign minister, Ahmet Davutoglu, said Turkey was downgrading diplomatic ties to the level of second secretary and the ambassador would leave Turkey by Wednesday.

Davutoglu also said Turkey was suspending all military agreements signed between the former allies, saying "it is time Israel pays a price".

The long-awaited UN report on the raid, made public on Thursday, declared that Israel's naval blockade of the Gaza Strip was legal, but that the Jewish state used unreasonable force.

Davutoglu said some of the report's findings were unacceptable. Turkey had earlier demanded an apology from Israel by the time the report was published.

Israeli officials said the report did not demand an Israeli apology, establishing instead that Israel should express regret and pay reparations.

An Israeli official said the report showed Israel's actions were in keeping with international law. The official said Israel hoped the two countries could now "return to the co-operation that was a cornerstone of regional stability".

He spoke on condition of anonymity because the report had yet to be officially released. He said Israel expected it to be made public by the UN later on Friday.

Relations between Turkey and Israel, once close, have slid in recent years as Turkey has tilted away from the west. They deteriorated sharply after the flotilla bloodshed.

The UN report says: "Turkey and Israel should resume full diplomatic relations, repairing their relationship in the interests of stability in the Middle East and international peace and security," according to the copy obtained by the New York Times.

Turkey announced the expulsion of the Israeli ambassador and suspension of military co-operation hours before the report was to be published, the most significant downgrading in ties between the two countries since the bloody flotilla attack.

A senior Israeli government official who had seen the report told AP earlier this week that Israel had come to believe Turkey was intent on worsening ties with Israel in order to bolster its own position in the Arab and Islamic world. While Israel does not rule out quiet talks with Turkey on an expression of regret and reparations to families of the dead activists, the report does not ask for an Israeli apology and there will not be one, he said.

Nine pro-Palestinian activists – eight Turks and one Turkish-American – were killed aboard the Turkish-flagged ship Mavi Marmara on 31 May 2010 after passengers resisted a takeover by Israeli naval commandos. The flotilla was en route to Gaza in an attempt to bring international attention to Israel's blockade of the Palestinian territory. Each side blamed the other, claiming self-defence.

After the violence triggered an international outcry, Israel eased restrictions on goods moving into Gaza overland but left the naval blockade in place.

The activists say the blockade constitutes collective punishment and is illegal. Israel asserts that it is necessary to prevent weapons from reaching the militants who regularly bombard Israeli towns with rockets from Gaza, which is ruled by the Islamist Hamas.

The UN committee established in the aftermath of the incident was made up of two international diplomats – the former leaders of New Zealand and Colombia – one representative from Israel and one from Turkey.

The report, as published by the New York Times, accepts Israel's position that the naval blockade is a "legitimate security measure". It acknowledges that Israel "faces a real threat to its security from militant groups in Gaza".

Participants in the flotilla, the committee wrote, "acted recklessly in attempting to breach the naval blockade". Most passengers were peaceful, according to the report, but a small group was prepared for organised resistance. These passengers were "armed with iron bars, staves, chains and slingshots, and there is some indication that they also used knives".

After soldiers rappelled on to the deck from helicopters, according to the report, "three soldiers were captured, mistreated, and placed at risk by those passengers. Several others were wounded."

The report established, however, that Israel's use of force was "excessive and unreasonable".

"No satisfactory explanation has been provided to the panel by Israel for any of the nine deaths," according to the report as quoted by the paper.

The committee noted "forensic evidence showing that most of the deceased were shot multiple times, including in the back, or at close range".

The senior Israeli government official said those hit in the back were attacking soldiers when they were shot from behind by other soldiers acting to save their comrades.