Under the $180 million contract, Israel Aerospace Industries, the flagship of Israel's defense industry, and Elbit Systems, the country's leading electronics specialist, were expected to deliver four of the Heron UAVs in August, with the series completed by the end of October.

But they missed the deadline. The Israelis said the delay was caused by problems in upgrading the Heron engines so that Turkish-made electro-optical payloads could be fitted to the UAVs.

Israel Radio quoted Defense Ministry officials as saying the problem had now been solved.

It was not clear whether deliveries had taken place. But Turkish publication Today's Zaman quoted a senior official at the Undersecretariat for Defense Industries as saying Thursday: "Turkey plans to impose a heavy monetary penalty for the delay.

"If this country refuses to comply with the penalty, then Turkey will head to the International Court of Commercial Arbitration."

The Turkish government's hard-line position underscored the degree to which once-flourishing relations between the two countries, the leading non-Arab military powers in the eastern Mediterranean and the Levant, have deteriorated in recent months.

In particular, a series of serious diplomatic confrontations over Israeli military actions against Palestinians in recent months, culminating in the Dec. 27-Jan.18 invasion of the Gaza Strip, effectively shattered the alliance that was formalized in a 1996 agreement.

Trouble has been brewing ever since the Islamist-based Justice and Development Party took power in Ankara in 2002.

The Turkish move away from Israel has accelerated under Prime Minister Recep Tayyep Erdogan, who has his eyes on restoring Turkey's leadership role in the Muslim world following the collapse of Ankara's bid to join the European Union.

To restore Turkey's status in the Muslim world, which vanished with the collapse of the Ottoman Empire after World War I, Erdogan had to shed the alliance with Israel.

Last week NATO member Turkey abruptly excluded Israel from biannual air exercises codenamed Anatolian Eagle, in which U.S., European and Israeli forces regularly participated. The maneuvers were canceled after the United States and Italy subsequently pulled out.

Ankara cited the delay in the Heron deliveries as one of the main reasons for snubbing Israel over the October exercises.

The impact of the Turkish action has been heightened by international condemnation of Israel's massive 22-day military offensive in Gaza, in which some 1,300 Palestinians, most of them civilians, were killed. Israeli fatalities totaled 13, several from friendly fire.

Israelis feel Ankara is employing a double standard by ignoring that it conducts offensive operations against its Kurdish separatists, including incursions into northern Iraq.

Turkey's leading daily newspaper, Hurriyet, has suggested that the "icy new tone" in relations is not likely to ease off any time soon.

Israelis have been aghast at the deterioration in relations with a country they thought was a close ally and friend. Their concern has been deepened by an upswing in Ankara's relations with Syria, one of Israel's main Arab foes, in recent weeks.

In April, Turkey conducted military exercises with Syria, a country with which it almost went to war in the late 1990s.

If the Turks decide to take legal action against Israeli defense companies over the Heron issue, relations will undoubtedly be aggravated further. It would also likely mean the end of substantial Israeli arms sales to Turkey.

According Israeli media reports, the largely state-run defense industries acknowledge that the volume of exports to Turkey has been diminishing in the last couple of years.

U.S. and European companies, particularly Italian, have been moving in to replace Israeli companies.

As the crisis has deepened, Israeli defense sources have indicated that the Jewish state might seek to retaliate against Turkey, possibly by cutting off the sale of advanced weapons systems.

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