Israeli Defence Minister Moshe Ya'alon gestures while addressing a gathering during a lecture themed "Israel-India Partnership in the 21st Century"?, in New Delhi February 19, 2015. REUTERS/Adnan Abidi

ATHENS (Reuters) - Israel’s defense minister said on Tuesday that Islamic State militants had been funded with ‘Turkish money’, an assertion that could hinder attempts to mend fences between the two countries after years of estrangement.

“It’s up to Turkey, the Turkish government, the Turkish leadership, to decide whether they want to be part of any kind of cooperation to fight terrorism. This is not the case so far,” Moshe Yaalon told reporters in Athens.

“As you know, Daesh (Islamic State) enjoyed Turkish money for oil for a very, very long period of time. I hope that it will be ended,” Yaalon, a right-wing former armed forces chief, told reporters after meeting his Greek counterpart, Panos Kammenos.

Turkey has denied permitting oil smuggling by the Islamist militant group, which holds swathes of territory in Syria and Iraq. The United States last month rejected Russian allegations that the Turkish government and President Tayyip Erdogan’s family were in league with Islamic State to smuggle oil.

However, U.S. State Department spokesman Mark Toner said last month that IS was selling oil to middlemen who in turn were involved in smuggling the oil across the frontier to Turkey.

Yaalon also said that Turkey had “permitted jihadists to move from Europe to Syria and Iraq and back, as part of Daesh’s terrorist network, and I hope this will stop too,” according to a Greek transcript provided by the defense ministry.

Efforts by Israel and Turkey to normalize ties hit a setback this month when Turkish Foreign Minister Mevlut Cavusoglu said there was no agreement on Ankara’s demands for compensation for the deaths of 10 Turkish activists on an aid ship in 2010 or for an end to Israel’s blockade of Gaza.

Senior Israeli and Turkish officials met in December to try to repair relations, raising hopes of progress in negotiations to import Israeli natural gas, particularly since Turkey’s relationship with Russia has worsened over the Syria conflict.