EU faces 'last chance' for peace in Israel

"This is not an internal conflict. You [the EU] are part of this conflict," he added. "I am talking about terrorism. I am talking about another London, about the clash of civilisations. The clash of civilisations started in Jerusalem and it will end in Jerusalem," Mr Margalit said, referring to the tube bombing in the UK capital in 2005.

The councillor in the 1970s himself helped build a Jewish settlement in Gaza and was wounded while fighting for the Israeli army. He later joined the left-wing Meretz political party and is a co-founder of the Jerusalem-based NGO, the Israeli Committee Against House Demolitions (ICAHD).

Mr Margolit in recent months worked with EU diplomats based in the occupied Palestinian territories to write a study called the "EU Heads of Mission Report on East Jerusalem." The EU paper, dated 23 November, was exposed by Israeli newspaper Haaretz earlier this week and has also been seen by this website.

"Israeli plans for Jerusalem, implemented at an accelerated rate, are undermining prospects for a Palestinian capital in East Jerusalem and incrementally render a sustainable two-state solution unfeasible," the report says.

It describes how government-backed Jewish communities in the Silwan and Sheikh Jarrah districts of the occupied city are driving out Palestinian residents to encircle the Holy Basin, an area containing sacred sites in Judaism, Christianity and Islam.

If the Holy Basin is cut off, Muslims will be forced to seek passage to the Al-Aqsa mosque, the third holiest place in Islam, through a cordon of hard-right Jewish settlers, creating a recipe for violence.

Encirclement would also make it impossible for the old parts of the city to be part of the future capital of a Palestinian state - a red line for Palestinian negotiators.

The Israeli actions in districts such as Silwan and Sheikh Jarrah "represent both an immediate and long-term strategic threat to European interests," the EU report says.

EU moots mini-sanctions

The EU document makes a series of prickly recommendations, including the "adoption of appropriate EU legislation" to stop EU financial transactions which aid settler activity and halting exports to the EU of Israeli products made in settlements.

It adds that "senior" EU officials who visit EU missions in the occupied territories should hold "dinners" with Palestinian officials as a sign of good will, but should refrain from traveling with Israeli security corteges or meeting Israeli officials on the occupied side.

The EU document represents the agreed position of the 21 EU diplomatic delegations in the region and will form part of the background for discussions on Israel when EU foreign minsters meet in Brussels next week.

Israel-friendly EU countries Germany, the Netherlands and the Czech Republic are among the 21 delegations which subscribed to the 23 November text even though they have a track-record of blocking Israel-hostile initiatives in the EU capital.

The Swedish EU presidency declined to comment. But Israeli diplomatic sources in Brussels highlighted that the government recently announced a temporary freeze on some settlements outside the old part of East Jerusalem. The idea of encircling the Holy Basin is a "conspiracy theory," one contact said.

'Bring your sons'

Meanwhile, Mr Margalit believes the situation has reached such a dangerous point that the EU should consider economic sanctions against Israel. The councillor rejected the argument that Europe cannot influence Israeli policy unless it acts jointly with the US.

"The EU is not a bunch of boy scouts," he said. "It is the biggest power here after the US. It must realise that what happens here will impact what happens in Europe much more than what happens in the US."

Hitting out at European apologists of Israel's occupation, Mr Margolit added: "It is easy to say such things from London or Brussels. I invite them to bring their sons here to serve in the army, as my sons have done."