The army said soldiers did not encounter any resistance in the takeover and planned to tow the yacht to the port of Ashdod.
The Dignite al Karame left Greece over the weekend naming its destination as Egypt but once in international waters changed its course for Gaza hoping to break the Israeli imposed blockade.
On Tuesday morning Israeli naval vessels surrounded the yacht tens of miles from the Gaza Strip shore and in English and French military officials called on the occupants to change course, warning if they ignored the request personnel would board the vessel.
"The boat is surrounded by at least four Israeli ships," Julien Rivoire a Paris spokesman for the activists saying. Rivoire added that all communication with the yacht had halted, raising fears it had been tampered with.
Greek authorities thwarted efforts by a flotilla of some 20 boats who planned to head for Gaza from leaving its shores. The French vessel was the only vessel that succeeded in heading towards Gaza after it told the authorities it was heading for Egypt.
Some 16 activists including Israeli journalist Amira Hess and a camera crew from al-Jazeera are on board the boat.
Israel has told those seeking to break the Gaza blockade to bring aid to the Palestinian people that they either head for Egypt or the port of Ashdod where the goods can be unloaded and transferred overland to Gaza.
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