A statement from the Miller family read: "Having had an exhausting and expensive five-year fight, the possibility of an out-of-court settlement might be considered, although no agreement has been reached."

Previous attempts at out-of-court settlements failed because Israel had either "reneged" or "renegotiated to our detriment", the family said.

"Waving a flag, or having a car with "TV" plastered on it, doesn't guarantee that they are journalists"

Jerry Lewis
Israel Radio correspondent

Israeli officials told the daily paper Ha'aretz that the legal aspects of the case "had been settled" as part of the deal.

In return, the UK government would end its action to extradite the Israeli soldiers for trial in the UK, according to Ha'aretz.

Miller's family filed a law suit against the state of Israel for murder, and in 2006 a British jury ruled the killing a murder.

Last year, the British attorney general's office dispatched a letter to Menachem Mazuz, the Israeli attorney general, threatening that the UK would ask that the soldiers involved in the incident be extradited.

Miller's family was due to begin a civil action in the Israeli courts next month to decide culpability.

'No precedent'

Israeli officials were adamant that the compensation case would not become a legal precedent and said the "deal is reasonable".

"The issue isn't over yet, but we're very close," one Israeli source said. "The affair burdened our relations with the UK and we are glad that the family and the British government are willing to reach a deal."

In the days following the killing, the Israeli army said that "the entry of photographers into war zones during exchanges of fire endangers both sides".

However, according to witnesses, there had been calm in the area at the time of the shooting.

Jerry Lewis, correspondent for Israel radio, told Al Jazeera: "The Israelis have issued warnings before ... You're going to a combat zone ... You know there'll be risks.

"Waving a flag, or having a car with "TV" plastered on it, doesn't guarantee that they are journalists," he said.

When Israel investigated the incident in March 2005 it concluded there was insufficient evidence to press criminal charges. The commander of the unit faced disciplinary proceedings but did not receive punishment.

The UK inquiry that followed, based on video evidence, showed Miller was shot in the neck by an Israeli army patrol.