Palestine claims EU backing on East Jerusalem

The EU communique said the union rejects Israel's annexation of East Jerusalem, that the pre-1967 invasion borders apply to the city and refers to it as an integral part of the the occupied West Bank, he explained.

"It is especially significant that this meeting has taken place only a few days later after the [EU] Council held its discussions," he added, referring to the Swedish EU presidency's decision to host him at its embassy in the EU quarter.

Mr Fayyad's remarks continue a dispute on what the EU really thinks about Palestine, which erupted two weeks ago when Israel first attacked a Swedish draft of the EU statement, which contained more explicit pro-Palestinian language.

East Jerusalem - which is home to Muslims and Jewish settlers as well as some of the holiest sites in Islam and Judaism - lies at the heart of international efforts to bring peace to the region, with Israel claiming it as part of its own "indivisible" capital.

Swedish foreign minister Carl Bildt on Friday did not question Mr Fayyad's interpretation of the EU communique.

But he reiterated that the statement represents nothing new in terms of the union's thinking on the subject: "It is identical in content on the status of Jerusalem from the start of the process to the end of the process," he said.

Sweden believes that Israeli outrage over recent EU criticism of its actions, such as accelerated settlement building on occupied land, is a side-effect of its discomfort with the US administration.

It cannot risk a public rift with its biggest ally, the US, despite President Barack Obama's new Israeli-critical policy, so it is taking out its anger on softer targets such as the Swedish EU presidency, the argument goes.

Mr Bildt continued to attack Israel's support for settlements, indicating that the EU is preparing a sharp rebuke if Israel goes through with plans to give new state funding to West Bank settlers.

"If this is the decision taken by the Israeli government, then we will most certainly express our views," he said.

EU money to keep flowing

Ms Benita Ferrero-Waldner, the European Commission's outgoing foreign relations head, also took a swipe at the Israeli occupation's destructive effect on the Palestinian economy.

"The fact that we now see a modest economic growth in the West Bank is particularly because you have done so much," she said to Mr Fayyad. "It's not so much the easing from the Israeli side."

The commission is preparing to launch a new Action Plan for Palestinian relations that is to involve sending in more EU experts and "front-loading" €158.5 million of aid in early 2010, Ms Ferrero-Waldner added.

"I'm sure my successor, Cathy Ashton, and the [EU] services will continue to give Palestinians all the necessary support," she said, referring to the EU's new foreign affairs chief.