Istanbul (CNN) -- Turkey's fiery prime minister ratcheted up rapidly-escalating tensions with Israel on Tuesday, comparing Ankara's once-close ally in the Middle East to a "spoiled boy" and announcing additional sanctions would soon be imposed.
"We are completely suspending all of these, trade relations, military relations, related with the defense industry," Recep Tayyip Erdogan said, according to the semi-official Anatolian Agency. "All of these are completely suspended and other measures will follow this process."
Asked to clarify whether this meant Turkey will halt more than $3 billion in bilateral trade, an official in the Turkish prime ministry, speaking on condition of anonymity under government protocol, insisted Erdogan was not referring to trade relations.
"He was referring to the defense industry," the official said. "Nothing more than the measures that have been announced so far."
Last week, Turkey declared it was downgrading relations with Israel, suspending all military agreements between the two countries and giving senior Israeli diplomats less than a week to leave Turkish territory.
"If the current steps are regarded as 'plan B,' there will be a 'plan C,'" Erdogan said on Tuesday in his first public comments on the matter since Ankara imposed sanctions on Israel.
Erdogan's government is incensed that Israel refuses to apologize or pay compensation for eight slain Turks and one Turkish-American. The humanitarian workers and activists were shot dead by Israeli commandos in a botched 2010 raid on an aid convoy that was trying to bust Israel's sea blockade of Gaza.
But "Israel does not want to see a further deterioration in the relationship with Turkey," said a senior Israeli government official, who asked not to be identified because of the sensitivity of the issue. "There have been a number of proposals on the table to prevent a deterioration and unfortunately they have not been successful, but from our point of view a deterioration in the relationship serves neither side's interests."
Multiple Israeli sources said they are doing what they can to be responsible and reverse the negative dynamic. Some Israeli officials believe the current troubles between the two countries are minor bumps that can be smoothed out with time and the proper diplomacy.
Others believe the deteriorating relationship has little to do with Israel and more to do with a reorientation of Turkish foreign policy towards the Muslim world.
A possible Erdogan trip to Gaza is contributing to that school of thought. Diplomats in Cairo and Ankara tell CNN that Erdogan is tentatively scheduled to visit Cairo next week. There is growing speculation in local media that the Turkish prime minister may try to visit Gaza via Egypt's Rafah border crossing.
"This is a process that will continue until the last moment," Erdogan said Tuesday, according to Anatolian, when asked about a trip to Gaza. "We will make the final decision there, talking to our Egyptian friends and brothers. According to that, there may be a trip to Gaza."
Despite deteriorating political relations between Jerusalem and Ankara, trade has grown substantially between the two countries over the last year, according to Turkish government statistics.
On Monday, Stanley Fischer, governor of the Bank of Israel, gave a speech in which he highlighted the importance of Israel's economic ties with Turkey. He noted that Turkey's economy was the largest in the region, with a gross domestic product in excess of $700 billion, and that Turkey is becoming a key player in regional trade.
Turkey is a significant Israeli trading partner, Fischer said, and damage to the trade relationship between the two countries could have serious consequences for Israel.
Yigal Schleifer, Washington-based editor at Eurasianet and expert on Turkish-Israeli relations, argues the Middle Eastern "outsider" status that once drew Turkey and Israel together into an alliance during the 1990s has changed, as Turkey has grown economically and established closer political ties with Arab neighbors.
"The paths have diverged," Schleifer said. "What you have left is two countries with different visions currently for their position in the region. So Turkey wants to build a more unified region with more open borders that ultimately helps trade and ultimately helps Turkey see itself as a regional leader. Israel sees itself as isolated in the region, increasingly threatened and increasingly concerned with security issues."
Prior to the report about Erdogan's comments Tuesday, Amos Gilad, a senior Israeli defense official, told Israeli radio that despite the reports, Turkey is not disengaging from Israel. Contrary to what is being reported, he said, the Israeli military attache to Turkey is continuing his work there.
CNN's Watson and Comert reported from Istanbul; Flower reported from Jerusalem. Journalist Mohamed Fadel Fahmy in Cairo contributed to this report.