EU diplomats urge financial sanctions on Israeli settlers

It adds that individual EU states should "explore the possibility of denying entry to known settler radicals."

It also calls for EU guidelines on retail labels for settler-made products, such as wine or cosmetics, in order to "guarantee [European] consumers' right to an informed choice."

EU institutions are already drafting a common code on product labels.

But EU foreign ministers have in recent years ignored similar proposals for sanctions.

An EU official told this website that Brussels-based diplomats discussed the Jerusalem report on 19 February, but "debate about the follow-up is [still] continuing."

Meanwhile, the 15-page text paints a scary picture of prospects for peace in the Arab-Israeli conflict.

It says: "If the current Israeli policy regarding the city [Jerusalem] continues, particularly settlement activity, the prospect of Jerusalem as a future capital of two states, Israel and Palestine, becomes practically unworkable."

It adds: "Settlement construction remains the single biggest threat to the two-state solution. It is systematic, deliberate and provocative."

It notes that 200,000 Jewish settlers have come to live in East Jerusalem since Israel annexed it "illegally" in 1967 and that Israeli tenders for new settler homes more than doubled in 2012 compared to 2011.

It warns that some new structures - such as those in the "E1" area - are designed to "form an Israeli buffer" around the city and to make it "difficult if not impossible to ensure [the] territorial contiguity" of Palestine.

At the same time, demolitions of Palestinian-owned buildings went up 54 percent last year, with 85,000 Palestinians considered to be "at risk of forced displacement."

The EU consuls general noted that Israeli administrative barriers for Palestinian schools and businesses "undermine the right to education" of 90,000 children and aggravate poverty.

They said 78 percent of Palestinians live below the poverty line, compared to 64 percent in 2006.

They also complained about Israel's "ideological" programme.

They said it gives free rein for settler groups to dig up archaeological sites to create a "partisan historical narrative of Jerusalem, placing emphasis on biblical and Jewish connotations of the area, while neglecting Christian/Muslim ties."

They noted that Israeli police stops Palestinian textbooks getting to Palestinian schools in favour of "a version of the curriculum edited by the Israeli authorities."

Reacting to the leaked paper, the Israeli embassy to the EU said European countries should pay more attention to rockets from Gaza than to settlements.

"I would like to know if there is also an EU report about the security situation for residents in southern Israel," its spokesman, Yoel Mester, told this website on Wednesday (27 February).

He added: "We're not running away from the need to discuss the issue [of settlements], but unfortunately the other side is running away from direct talks where we could discuss this as well."

For her part, Palestine's ambassador to the EU, Leila Shahid, called his remarks "rubbish."

She said Palestine is ready to restart talks when Israel honours its commitments in the Roadmap - a 2003 agreement between Israel and the Palestinian Authority (PA), which says Israel will freeze settlements if the PA stops violent resistance.

"They have not only not frozen settlements, they have intensified them. I don't see how we can be running away from anything, when all we ask is for Israel to stick to its obligations," she told EUobserver.