Israeli PM rejects EU 'dictate' on borders

He added the EU should focus on Iran's alleged nuclear weapons programme and Syria's civil war instead of the Arab-Israeli conflict.

"I expect those who want peace in the region to deal with settlements after they solve the Syria crisis and the Iranian threat," he said.

His remarks come after revelations in Israeli newspaper Haaretz that the European Commission on 28 June quietly adopted new guidelines on EU funding in the region.

According to the rules, EU institutions will from 2014 onward refuse to co-fund projects unless Israel gives legal guarantees that none of the money will go to entities whose official seat is beyond the 1967 green line.

"The purpose of these guidelines is to make a distinction between the state of Israel and the occupied territories when it comes to EU support," the EU delegation in Tel Aviv said in a statement also on Tuesday.

The EU and the UN say the Palestinian territories of East Jerusalem, Gaza and the West Bank, as well as Syria's Golan Heights, were illegally occupied by Israel after the 1967 Arab-Israeli war.

But Israel, which refers to the West Bank as Judea and Samaria and which claims Jerusalem as its "indivisible" capital, says they are not under occupation because there is no such thing as a Palestinian state.

It says it needs to keep the Golan Heights as a buffer against a potential Syrian attack.

It also says its final borders can only be agreed in bilateral talks with Palestinians.

Meanwhile, it has built over 100 settlements, which house more than half a million Jewish people, in the regions over the past five decades.

The settlements dispute is nothing new.

But the EU code is significant because it would force Israel's own government to sign up to the EU position on borders if it wants any more EU money for Israeli firms in the Palestinian zone.

The code also comes just as the US is trying to restart Israeli-Palestinian peace talks.

Netanyahu's reaction was among the more mild ones in a series of broadsides against Brussels on Tuesday.

"This is a miserable decision, which was made in very bad timing," Israel's finance minister Yair Lapid said.

"Once again, Europe has demonstrated just how detached it is, how it can't really be a full partner to the [peace] negotiations," regional development minister Silvan Shalom noted.

"This is more fuel for Palestinian rejectionism," deputy foreign minister Ze'ev Elkin added.

The EU commission and foreign service are currently working on a second code.

They plan to publish, later this year or in early 2014, guidelines on retail labels for settlement-made products to make it easier for EU consumers to boycott them if they want to.