Israeli FM: Ashton 'lacks grasp of reality'

He said: "The EU should focus on the problems that are surfacing between different nations on European soil. After these issues are successfully resolved, we will gladly hear any suggestions regarding a solution to the problems with the Palestinians."

He added: "These automatic [EU] condemnations indicate a lack of a basic understanding of the reality in the region ... [Gilo] is an inseparable part of Jerusalem, and Jerusalem is an inseparable part of Israel."

The EU foreign service on Friday criticised Israel's decision to build 797 new housing units in the Jewish-only Gilo settlement, in Palestinian-owned but Israeli-occupied East Jerusalem.

Construction is creating a Jewish ring around the old part of the city, which is holy for both Muslims and Jews.

"Together these developments continue the process of separating East Jerusalem from the rest of the occupied Palestinian territory," EU foreign service chief Catherine Ashton said.

The EU routinely criticises settlements but never follows up with sanctions, as suggested by its own ambassadors on the ground.

It is currently drafting a voluntary code of conduct for labels on settlement-made exports to help EU consumers boycott the goods, however.

Meanwhile, also on Saturday, Israeli navy boarded and seized the Estelle, a Finnish-flagged ship which set sail for Gaza from Naples on 7 October carrying about 20 people in protest at Israel's military blockade of Palestinian-controlled Gaza.

The EU has in the past also called for Israel to relax the blockade.

But Ashton has discouraged Estelle-type adventures, which saw Israeli commandos shoot dead nine people on board a Gaza-bound flotilla back in 2009.