By Can Sezer and Dan Williams
ISTANBUL/JERUSALEM (Reuters) - Israel said on Friday it was reducing its diplomatic presence in Turkey after protesters angered by its ground offensive into Gaza pelted its consulate in Istanbul with stones and draped Palestinian flags on the ambassador's residence in Ankara.
The Israeli Foreign Ministry accused Prime Minister Tayyip Erdogan of "incitement" and said it was ordering the return of diplomats' families and trimming staffing to a minimum.
Erdogan accused the Jewish state on Wednesday of terrorising the region and likened an Israeli MP and member of the governing coalition to Hitler. On Friday, he said there would be no improvement in relations between the two countries while he or his administration remained in charge.
"(Israel) has always been oppressive, and continues to oppress. Hence, as Turkey, I cannot think of positive developments with Israel as long as I hold this duty," Erdogan told reporters in Istanbul.
He also criticised the West and the Muslim world for what he said was their silence in the face of "inhumane attacks".
"Westerners may say I am stirring up tensions, but I have the mission of winning the consent of people and God."
In Washington, a spokeswoman for the U.S. State Department called Erdogan's remarks about Israel "offensive and wrong."
"This kind of provocative rhetoric is unhelpful and distracts from urgent efforts to bring about a cease-fire," Jen Psaki told a regular news briefing.
"What we're continuing to convey to any country in the region, including Turkey, is that the most productive role they can play is supporting the Egyptian cease-fire proposal," she said, referring to a Gaza truce plan put forward by Cairo.
While noting that Turkey was a member of the U.S.-led NATO military alliance, Psaki said Washington would not hesitate to air its concerns "about comments made or actions taken, even when it is a NATO ally".
Psaki said Erdogan's remarks were "certainly not helpful" when it came to efforts the United States has been making to encourage a rapprochement between Turkey and Israel.
Turkey was once Israel's closest regional ally. But Erdogan has been a strident critic of its treatment of the Palestinians, and has issued a series of broadsides against the Jewish state since the Gaza hostilities erupted.
Relations reached a nadir in 2010, when Israeli commandos stormed the Turkish ship Mavi Marmara sailing as part of a flotilla challenging the Jewish state's naval blockade of Gaza. Ten people were killed. Efforts to mend fences picked up after Netanyahu last year apologised for the raid and pledged to pay compensation, but progress later stalled.
While bilateral trade remains largely unaffected, Israel's diplomatic presence in Turkey had already been downgraded.
On Friday, Israel stepped up its land offensive in the Gaza Strip after Islamist militants there rejected the proposed truce and kept firing rockets into Israeli territory.
Palestinian President Mahmoud Abbas met Turkish President Abdullah Gul in Istanbul and said Palestinian authorities were working with the international community and "brotherly Muslim countries" towards an immediate ceasefire.
Early on Friday, Turkish riot police fired tear gas and water cannon to disperse protesters outside the Israeli mission in Istanbul, but did not intervene in Ankara, where windows of the ambassador's residence were smashed, local media reported.
"Die out murderer Jew" had been scrawled on the wall across from the consulate in Istanbul.
The Israeli Foreign Ministry issued a statement saying Israel "strongly protests the blatant breach of diplomatic regulations ... which were grossly violated by the Turkish authorities and security services during the demonstrations".
Around 3,000 people poured onto the streets of Istanbul after Friday prayers, chanting anti-Israel slogans and waving Palestinian flags, while passing cars honked in support.
There were also smaller demonstrations in Ankara and the eastern city of Diyabakir, but no repeat of earlier violence. Anti-Israeli sentiment runs high in Turkey, particularly among Erdogan's largely conservative Sunni Muslim voter base, who he hopes will hand him victory in Turkey's first direct presidential election next month. "These protests will go on until all Israeli embassies are closed, one woman protester, who was pushing her baby in a pram, told Reuters. I will attend all protests if I have to. I can't even begin to express my anger at the massacre in Gaza."
(Additional reporting by Gulsen Solaker in Ankara, Ece Toksabay in Istanbul and David Brunnstrom in Washington; Writing by Jonny Hogg; Editing by Nick Tattersall, Ralph Boulton, Kevin Liffey and Ken Wills)