The diplomats, who have been briefed on the negotiations, said an agreement has not been finalized, Israeli broadcaster Arutz Sheva reported Monday, citing an exclusive report by Haaretz.
Turkey initially demanded $30 million in connection with the deaths of the nine activists aboard the Mavi Marmara, which was attempted to deliver humanitarian aid to Palestinians in the Gaza Strip.
Israel reportedly countered it wouldn't pay more than $15 million, Arutz Sheva said.
Israeli Prime Minister Binyamin Netanyahu later offered $20 million, with $3 million more possible "if necessary to secure an agreement," the report said.
Bulent Aric, Turkey's deputy minister, said last July Israel would have to acknowledge the money was being paid as a result of Israeli forces committing a "wrongful act."