The EU has expressed regret over the leaking of an internal report on Israeli settlements.
The document, prepared by EU diplomats, said Europe should exclude those areas from trade benefits enjoyed by Israel.
The report said settlement building in East Jerusalem is “the biggest single threat to the two-state solution.”
“It is systematic, deliberate and provocative,” diplomats said.
Israel captured East Jerusalem during the 1967 Six-Day War.
It subsequently annexed the area in a move that has never been recognised by the international community.
The country’s foreign ministry said the report was one-sided.
“A diplomat’s mission is to bring people together and to build bridges and, not to foster confrontation. The European consuls have in this case miserably failed in that mission,” said spokesman Yigal Palmor.
Palestinian diplomats in Brussels welcomed the report’s conclusions.
Hadi Chebli of the Palestinian delegation to the EU said: “This time it is true that the EU has really begun to take note of the report’s recommendations.”
The International Court of Justice has said the settlements are illegal.
The Palestinians see East Jerusalem as the capital of their future state.