"Israel´s decision to board the vessels with such substantial force at a great distance from the blockade zone and with no final warning immediately prior to the boarding was excessive and unreasonable," it said.
It said, however, that the six-vessel aid flotilla "acted recklessly in attempting to breach the naval blockade" set up by Israel around Gaza.
The draft also said Israel´s naval blockade of the Gaza Strip was "legitimate", complying with "the requirements of international law".
The inquiry called for Israel to make "an appropriate statement of regret" for the raid and pay compensation to the families of the dead as well as to injured victims.
Turkey and Israel should resume full diplomatic relations "repairing their relationship in the interests of stability in the Middle East," the report says.
Hamas, which controls Gaza, said the inquiry into the flotilla aid bound for Gaza was "unjust" and lacked balance.
Belated apology?
The Israelis have been holding their line that they are not going to comment on this until the report is actually released, Al Jazeera´s Cal Perry reported from Jerusalem.
While Turkey´s downgrading measures are a definite blow to Israel´s foreign relations, Perry said the report recognised the legitimacy of the Israeli blockade of Gaza.
"I think the one positive they can take away from this is that the report declared the Gaza blockade legal," our correspondent said.
"The draft of the report said the Israelis did not act in any illegal fashion, although it said they were overly aggressive when they assaulted the ship."
It is unclear whether Turkey´s actions will prompt Israel to issue an apology, but it might to something similar to its recent expression of "regret" to Cairo over a near-border incident that killed five Egyptian security officers, Perry said.
"I think we can expect to hear something that tries to tread sort of along the middle line."
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