Israel is setting up an inquiry into its deadly raid on an aid flotilla heading for Gaza.
The probe will be headed by a judge who will be joined by two high-ranking foreign observers.
The government statement said the Israeli Cabinet would be asked to approve the "special independent public commission" immediately.
The chairman is to be Yaakov Turkel, a retired Israeli Supreme Court justice, the statement said. The two foreign observers are to be Lord William David Trimble of Ireland, a Nobel Peace Prize laureate, and retired Brig. Gen. Ken Watkin, the former chief military prosecutor in Canada.
The Obama administration and the UN have urged Israel to involve foreigners in the investigation, while Turkey and others have demanded an inquiry without Israeli involvement. The White House said later it backs Israel's inquiry into the deadly raid, saying the independent public commission is "an important step forward."
Press Secretary Robert Gibbs says Israel's panel can meet the standard of a "prompt, impartial, credible and transparent investigation. Washington's ambassador to the UN, Susan Rice, told Fox News in the US that while the United States believes Israel can conduct a "credible and impartial" investigation, an "international component" would "buttress its credibility in the eyes of the international community."
The inquiry announcement came as the Arab world's top diplomat declared his support for the people of blockaded Gaza in his first visit to the Palestinian territory since Hamas violently seized control of it three years ago. The visit was the latest sign that Israel's deadly flotilla raid has eased the diplomatic isolation of the Islamic militant group. Israel, meanwhile, appeared to grow more isolated in the fallout over the May 31 raid as Israeli Defence Minister Ehud Barak abruptly cancelled plans to visit Paris.
Israeli defence officials said Barak called off his trip to Paris over concern about the unwanted attention his visit would attract. In particular, they pointed to the heavy media focus and difficult questions he would face as well as the heightened security arrangements the visit would require.
Activists have previously tried unsuccessfully to arrest Barak and other Israeli officials in Europe under the principle of universal jurisdiction.