Prime Minister Benjamin Netanyahu was expected to announce on Monday or Tuesday the creation of a state panel of inquiry to investigate the Israel Navy's deadly raid of a humanitarian aid flotilla bound for the Gaza Strip last week.

A senior source in Jerusalem said the panel would comprise top justices experienced in matters of international and marine law. Two international justices – at least one of them American - would be invited to participate as observers, said the source.

In addition to investigating the circumstances surrounding the Israel Navy's seizure of the Turkish-flagged Mavi Marmara, the committee will also be charged with looking into the legality of Israel's closure of the Gaza Strip and its naval blockade.

Netanyahu's forum of top seven ministers decided to create the internal investigative panel on Monday, after days of deliberation. An official announcement on the matter was awaiting approval from the attorney general, to ensure that there were no conflicts of interest among the potential members of the committee.

The forum of seven ruled in its decision that the panel would not be allowed to interrogate soldiers or officers who took part in the commando raid, which left nine Turkish activists dead and several people wounded. It was not yet clear whether senior Israel Defense Forces officials – including IDF Chief of Staff Gabi Ashkenazi and Israel Navy Commader Eliezer "Chiney" Marom - would be investigated by the panel.

The ministers' decision comes on the heels of a United Nations proposal to establish an international committee comprising representatives of Israel, the U.S. and Turkey to investigate the incident.

Despite growing international pressure, Netanyahu had balked at the proposal, claiming Israel has the right to investigate itself.

Defense Minister Ehud Barak told Knesset on Monday, in response to a no-confidence motion submitted by the opposition with regard to the raid, that Israel would examine ways to minimize friction in enforcing its blockade of Hamas-ruled Gaza.

"We intend to achieve an investigation of the events," Barak said, without giving details about the format of the probe.

He did say that the state panel would serve in addition to a separate military investigation, and that it would seek to establish whether Israel's four-year blockade of Gaza and its raid "met with the standards of international law".

"We will draw lessons at the political level [and] in the security establishment," Barak said. "Since the event we have heard and read mountains of talk and questions and without a doubt in the coming months we shall discuss lessons ... perhaps additional ways to achieve the same goals of the blockade, by reducing as far as possible the potential for friction."