Prime Minister Benjamin Netanyahu announced the breakthrough after a phone conversation with his Turkish counterpart, Recep Tayyip Erdogan. The 20-minute phone call was brokered by visiting President Barack Obama shortly before he left Israel.

The announcement was an unexpected reversal by Netanyahu, who has repeatedly rejected calls to apologize. But the two countries' joint interests, including fears that the Syrian civil war could spill over their respective borders, made the time ripe to mend relations.

"The two men agreed to restore normalization between Israel and Turkey, including the dispatch of ambassadors and the cancellation of legal steps against Israeli soldiers," a statement from Netanyahu's office said.

Netanyahu "expressed regret over the deterioration in bilateral relations and noted his commitment to working out the disagreements in order to advance peace and regional stability," it said.

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Israel's government declined comment on the announcement by Vice President Omar Suleiman that Mubarak decided to step down after three decades of iron-fisted rule. The dramatic decision came after an 18-day popular revolt against the 82-year-old autocrat.

However, former Israeli officials expressed concern that regime change in Egypt, as part of a wider transformation of the Arab world, could leave Israel even more isolated. Last year, regional powerhouse Turkey shifted away from its alliance with Israel.

"We have a tough period ahead of us," Zvi Mazel, a former Israeli ambassador in Egypt, told Israel TV. "Iran and Turkey will consolidate positions against us. Forget about the former Egypt. Now it's a completely new reality, and it won't be easy."

Some in Israel feared the unrest could spread to neighboring Jordan, the only other Arab country that has a peace deal with Israel, or to the Palestinian territories. Only last month, an uprising in Tunisia ended with the ouster of a longtime dictator there.

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