The European Union should consider legislation to prevent or discourage companies and organisations in member states doing business which supports Israeli settlements, according to a confidential report drawn up by EU diplomats in Jerusalem.
The recommendation is contained in the EU Heads of Mission Report on East Jerusalem, which assesses the impact of settlement growth and other factors on the prospects for Jerusalem as the future capital of two states, Israel and Palestine.It describes the situation as "deteriorating" and warns that "the systematic increase in settlement activity... increasingly undermines the two-state solution".
The 2011 report, leaked to the Guardian, was sent to Brussels on Monday following approval by EU diplomats last Friday. It builds on earlier annual reports, which were also highly critical of Israeli policies in East Jerusalem.
It calls on the European commission to consider legislation "to prevent/discourage financial transactions in support of settlement activity".
Legislation should prohibit trade and business with settlements based on their illegality under international law, rather than a politically-driven boycott, said one EU diplomatic source.
It is the latest in a spate of recent European reports and statements, including:
• Nick Clegg, the UK deputy prime minister, describing settlement construction as "an act of deliberate vandalism" that was doing "immense damage" to the prospects for peace. "The continued existence of illegal settlements risks making facts on the ground such that a two-state solution becomes unviable," he said.
• A French parliamentary report accusing Israel of "apartheid" policies in its allocation of water resources between Israeli settlers and Palestinians in the West Bank.
• An internal EU report strongly criticising Israeli policies in Area C, the 62% of the West Bank under full Israeli control, saying they were jeopardising prospects for a two-state solution.
The EU report on Jerusalem points to a "surge in settlement planning" in 2011, especially at the city's southern flank, which includes "the first major new Israeli settlement in Jerusalem" for 15 years, at Givat Hamatos.
It also cited the planned expansion of Gilo, a settlement on the edge of Jerusalem close to Bethlehem, which "attracted significant international concern and condemnation" as the decision was taken within days of a call by the Middle East Quartet for Israel and the Palestinians to refrain from provocative actions.
The report highlights a longstanding plan for another new settlement for about 14,500 settlers on an open area to the east of Jerusalem known as E1. Infrastructure work was halted in 2004 after US objections, but the report says there are strong indications – including the impending forced removal of 2,300 Bedouin Arabs from the area – that the plan will be implemented.
"Successive Israeli governments have pursued a policy of transferring Jewish population into the oPt [occupied Palestinian territory] in violation of the fourth Geneva convention and international humanitarian law," the report says. The EU says East Jerusalem is occupied territory and was illegally annexed.
It says Israel is "actively perpetuating its annexation by systematically undermining the Palestinian presence in the city" by imposing planning regulations in Palestinian neighbourhoods, house demolitions, evictions, archaeological activity in the "historic basin" around the Old City, the revoking of Palestinian residency rights, separate bypass roads for Israelis and Palestinians and the construction of the separation barrier.
The report says Israel uses different methods to gain control of Palestinian land and property, including the recent designation of privately-owned land for a new national park at Mount Scopus. The plan would halt any expansion of Palestinian neighbourhoods.
The difficulties of obtaining permission to build, or obstructions to expansion, force Palestinian families to choose between leaving Jerusalem or building illegally and risking demolition orders, it says.
"If current trends continue, the prospect of Jerusalem as the future capital of two states becomes increasingly unlikely and unworkable, undermining the two-state solution."
The report details inequities in public funding for education and transport between Jewish and Palestinian areas of Jerusalem. Fewer than half of Palestinian children in East Jerusalem are in municipal schools because of a severe shortage of classrooms. Palestinians comprise 37% of the city's population, but only 10% of the municipal transport budget is spent in Palestinian areas. Poverty in Palestinian neighbourhoods is far higher than in other areas of the city.
Yigal Palmor, spokesman for the Israeli foreign ministry, dismissed the report as "an unpleasant background noise".
He said: "In a desperate attempt to get attention, they are suggesting an all-out boycott, which is unfeasible for legal, technical and political reasons. There is a reason why these reports find their way to the nearest drawer."
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