Israel is still 'functioning democracy', EU says

"Israel is a democratic country with functioning democratic institutions and it is not for us to comment ongoing domestic discussions," the EU added.

Tens of thousands of Israelis have been protesting in recent days over government plans to let MPs override future verdicts of the Supreme Court and to increase political control on judicial appointments.

The plans have drawn comparison with judicial reforms by illiberal governments in Hungary and Poland, which saw the EU freeze tens of billions of euros of funding to Budapest and Warsaw in response.

But the EU foreign service said its internal sanctions against member states were not a template for foreign relations.

"We do not know what will be the outcome of the current discussions. In any case Israel is not an EU member state so no comparisons could be applied on it with processes and actions concerning the EU institutions and member states in this regard," it said.

The far-right ruling coalition of Israeli prime minister Benjamin Netanyahu has also promised to annex Palestine's West Bank in future — a gross violation of international law, as enshrined in UN Security Council Resolution 2334.

It took a de facto step in that direction on Sunday by announcing it would legalise nine existing Israeli settler outposts in the West Bank and authorise 10,000 new settler homes.

The move drew an immediate rebuke from Brussels and Washington.

France, Germany, the UK, and the US also said in a separate statement on Tuesday: "We strongly oppose these unilateral actions which will only serve to exacerbate tensions between Israelis and Palestinians and undermine efforts to achieve a negotiated two-state solution".

The worrying developments come amid a surge in violence in the occupied territories.

Last year saw Israeli forces kill over 150 Palestinians in the West Bank and East Jerusalem — more than in any other year since the occupation began in 1967. Some 20 Israelis were killed by Palestinian attackers.

Meanwhile, 46 Palestinians and nine Israelis have been killed in violent incidents already this year.

The EU has never imposed sanctions on Israel, but shelved plans for greater police cooperation last year due to the extremist views of some Israeli ministers.

Hungary is among the most pro-Israeli EU countries and has in the past vetoed adoption of several Israeli-critical EU declarations, let alone punitive measures.

Hungary's EU commissioner, Olivér Várhelyi, in charge of Europe's neighbourhood policy, also unilaterally blocked EU funding for Palestinian Authorities last year in a bid to force them to use Israeli textbooks in schools.

This year, he is spending €10m of EU taxpayers' money on lubricating the Abraham Accords — an Arab-Israeli peace plan created by former US president Donald Trump, which makes no mention of a future Palestinian state, despite formal EU support for a two-state solution to the decades' old conflict.