Israel has paid Britain £40,000 for the restoration of the Commonwealth War Graves cemetery in Gaza - but it is only half the sum the UK asked for.

The two countries have been in dispute since Operation Cast Lead, Israel's operation in Gaza in 2009. More than 3,500 soldiers, mainly from Britain, who died in the battles of the First World War, are buried in the cemetery.

In January 2009 the Commonwealth War Graves Commission (CWGC) said that Israeli shelling had damaged headstones at the cemetery, a charge which Israel denied.

Peter Francis, a spokesman for the CWGC, said: "Gaza War Cemetery was damaged in 2009 when shells fell in the cemetery. Some structures were hit, turf was gouged and scorched and more than 350 headstones were damaged, some of them beyond repair."

Three years earlier there was also damage to the Gaza cemetery, and Israel compensated Britain. But the 2009 events led to a prolonged dispute between the two countries. The CWGC, one of whose commissioners is Princess Anne's husband, Vice-Admiral Sir Tim Laurence, said the damage caused amounted to £84,000. It carried out repairs and has been trying to recoup the costs from Israel since.

But a spokesman for the Defence Ministry said there was "no clear evidence" as to what caused the Gaza cemetery problems, saying there were a variety of other reasons, such as Palestinian shooting, detonated ammunition in the area, vandalism, and even the natural ageing of the headstones.

On October 27 the legal adviser of the Defence Ministry, Ahaz Ben-Ari, held a meeting in Tel Aviv with Colonel Philip Stack, the military attaché at the British embassy. An ex gratia payment of £40,000, in recognition of "the good relations between Israel and Britain, and out of respect for the soldiers in the cemetery and our values as a nation," was offered to Britain.

Last week, Britain accepted. The money is now in the CWGC bank account.