JERUSALEM (Reuters) - Israel is unlikely to pass up on the near $1.8 billion awarded it in compensation for Egypt halting a natural gas supply contract in 2012, even though the two countries both want a way out of the dispute, Energy Minister Yuval Steinitz said on Wednesday.

Egypt had been selling gas to Israel under a 20-year agreement but stopped supplies in 2012 following months of attacks on the supply pipeline by militant groups in Egypt's Sinai Peninsula, which borders Israel and the Gaza Strip.

Cairo said on Sunday it would appeal against an order by an international arbitrator to pay $1.76 billion in compensation to state-owned Israel Electric Corp (IEC) and would freeze talks on future gas imports from Israel's giant new fields in the Mediterranean Sea until the dispute was resolved.

IEC, which had sought $4 billion in compensation, says that with the Egyptian supplies cut it was forced to burn more expensive fuels to generate electricity.

Asked on Wednesday by Israeli broadcaster Army Radio whether Israel might forgo the money, Steinitz said 'no'.

"But I think that we will sit with the Egyptians, and there will be a dialogue, and we will think together how to move forward," Steinitz said. "Exporting Israeli gas to regional countries likeEgypt, Turkey, Greece, Jordan, the Palestinian Authority has a diplomatic value."

The ruling could sour recent talks by private companies to import Israeli gas via the existing subsea pipeline. On Nov. 25, developers of Israel's new Leviathan gas field in the Mediterranean announced a preliminary deal to pump natural gas to Egypt for up to 15 years.

Egypt has said it still wants to import Israeli gas despite Italy's ENI discovering the even bigger Zohr gas field off Egypt's coast in August.

Prime Minister Benjamin Netanyahu told parliament's economics committee on Tuesday that he agreed with the Egyptian government to send a special envoy to Cairo to seek a solution.

"I believe that we will reach a solution due to the common interests of both sides," he said. "This is a very large interest. I think that, ultimately, those interests dictate reality."

Steinitz, who declined to comment on details of the talks, noted that Egypt only announced a freeze and not a cancellation of talks on future gas imports.

"We see strengthening ties, both in terms of security and in terms of economy and energy, withEgypt as having importance that even goes beyond the economy," he said.

"But we also see importance, additionally, in exporting gas to other countries in our region, and we have been looking into this for some months now," he added, mentioning Jordan, Turkey and Greece as possible markets.

"We are indeed interested in the Egyptian vector, but we are looking into all of the export possibilities, both the countries of the region and also to western Europe."

(Reporting by Steven Scheer and Dan Williams; Editing by Greg Mahlich)