* Israel gives investigation green light
* Panel to be led by former New Zealand PM Palmer
* Will include Israeli member (Adds Turkish reaction, U.N., U.S. comments)
By Patrick Worsnip
UNITED NATIONS, Aug 2 U.N. Secretary-General Ban Ki-Moon announced an international inquiry on Monday into Israel's deadly May 31 attack on a Gaza-bound aid flotilla, after the Jewish state agreed to cooperate with the probe.
The investigation will be led by former New Zealand Prime Minister Geoffrey Palmer as chairman and outgoing Colombian President Alvaro Uribe as vice chairman, Ban said in a statement. The panel also will have one Israeli and one Turkish member, who will be named shortly, U.N. officials said.
The four-person group will start work on Aug. 10 and submit its first progress report by mid-September, said Ban, who first proposed the inquiry soon after the flotilla incident.
The storming of the Turkish-owned flotilla, which was trying to run Israel's blockade of Hamas-ruled Gaza, caused an international outcry after Israeli commandos killed eight Turks and one Turkish-American they said were violently resisting.
The action led to a sharp deterioration in Israeli-Turkish relations and forced Israel to ease its Gaza blockade, which the Jewish state says aims to prevent Palestinian Hamas militants from acquiring military capacity to attack Israel.
Ban's announcement came shortly after Israel, which has already completed its own military investigation and begun a civilian one, said it had decided to cooperate with him.
A statement from Prime Minister Benjamin Netanyahu's office said he had told Ban on Monday of his agreement "following diplomatic contacts over the past several weeks aimed at ensuring the panel and its mandate will be fair and balanced."
It quoted Netanyahu as saying, "Israel has nothing to hide. On the contrary, Israel's national interest is to ensure that the factual truth about the entire flotilla incident is revealed to the whole world."
Ban called the launch of the panel "an unprecedented development" and thanked the leaders of Israel and Turkey "for their spirit of compromise and forward-looking cooperation."
He said the panel would give recommendations for preventing future incidents and hoped the agreement to open the inquiry would help Turkish-Israeli ties.
U.N. spokesman Martin Nesirky said it was not a criminal investigation. "It's been tasked with making findings about the facts and circumstances and the context of the incident," he told reporters.
The U.N. Security Council, in a statement the day after the flotilla incident, had called for "a prompt, impartial, credible and transparent investigation conforming to international standards."
U.N. diplomats said they understood the United States, the Jewish state's principal ally, had urged Israel to cooperate with Ban's inquiry.
Washington's U.N. envoy Susan Rice said in a statement that the panel, which will review Israeli and Turkish inquiries, was "not a substitute for those national investigations" and its focus was "appropriately on the future."
Turkey welcomed the establishment of the panel. The Foreign Ministry called it "a right step in the right direction" and promised that Ankara would assist the inquiry's work.
Israel has previously shunned U.N. efforts to investigate its military. It refused to cooperate with a commission that accused it last year of suspected war crimes in a month-long Gaza war in which 1,400 Palestinians and 13 Israelis died.
Israel's announcement made no mention of a separate fact-finding team named by the U.N. Human Rights Council, a body Israel sees as biased against it. Three council experts are expected to visit Israel, Turkey and Gaza this month.
A report released by the Israeli military last month found operational errors in the raid on the flotilla but defended the use of force, saying activists on one ship attacked troops with knives and clubs.
Israeli sources said Israel was discussing its representation on Ban's panel with the United Nations and that a former diplomat or judge would likely be appointed. (Additional reporting by Jeffrey Heller and Allyn Fisher-Ilan in Jerusalem and Tulay Karadeniz in Ankara; Editing by Cynthia Osterman