Nine Turkish activists died in May when Israeli commandos raided the boat, which was part of a flotilla seeking to break the blockade imposed on the Gaza Strip.
The Istanbul crowd chanted anti-Israeli slogans and vows to return to Gaza, Israel Radio reported.
The current Israeli government makes it difficult to improve ties between Ankara and Jerusalem, Turkey's Foreign Minister Ahmet Davutoglu said.
In an interview with the Turkish daily Hurriyet Daily & Economic Review Saturday, Davutoglu said Turkey wants to reconcile with Israel, but the Israeli government is complicating the process.
"The fact that we have the will to make peace does not mean that others also have that will. Then this creates difficulty. It is very difficult to establish political will in Israel," he said.
"The problem, about Israel and this is the problem of the world too, is that there is not a government in Israel that can use political will," he said. "There are conflicting signals coming (from the government). The rivalry within the coalition is very tough."
Davutoglu was referring to recent efforts by Israeli and Turkish diplomats to improve ties between the two countries, which deteriorated following Israel's raid on the Mavi Marmara in May.
Turkey has demanded Israel apologize and compensate the victims' families.