A classified European Union report for 2009 says Israel is actively pursuing the annexation of east Jerusalem. The report accuses Israel of implementing an intricate policy including expanding Jewish settlements and demolishing Palestinian homes. It says policies "are undermining prospects for a Palestinian capital in east Jerusalem and incrementally render a sustainable two-state solution unfeasible"; this is described as, "an integral part of a broader Israeli strategy."
Israeli Foreign ministry spokesperson, Yigal Palmor, told AFP that the report was "dishonest", "reflects the Palestinian propaganda" and "is based exclusively on Palestinian versions and figures." This comes as EU foreign ministers prepare a statement on the Middle East. To allow for US initiatives, EU foreign ministers have not commented on the stalemate between Israel and the Palestinians over past months; but, diplomatic sources say there are “sensitivities” over a Swedish proposal to divide Jerusalem in any peace deal.
Citing official Israeli statistics from the Ministry of Interior executive director of Israel’s HaMoked (Center for the Defence of the Individual) said Wednesday that, "Israel has stripped Palestinians of Jerusalem residency status last year at a faster rate than at any time in the history of the state". 4,577 residents of East Jerusalem have had their residence revoked in 2008, this is more than half the total revoked in the past 40 years. The Jerusalem municipality places severe restrictions on issuing building permits for Palestinian houses in east Jerusalem, since 2000 over 600 Palestinian-owned structures have been demolished and Palestinians receive fewer than 200 of the 1,500 building permits needed per year.
The 14-page annual report dated November 23 was drafted by European envoys and consuls in Jerusalem and Ramallah and presented to Brussels EU institutions a few days ago. This is the first time the annual report has been made public. Haaretz says, in the past, Israel has pressed the EU not to publish fearing it would undermine the European public's view of Israel. The report was leaked to Israel's Haaretz daily newspaper and obtained by AFP yesterday.
The EU report claims the Israeli government and Jerusalem municipality discriminate against Arab residents with regard to building permits, health services, education, sanitation and more. Allegations of assisting private right-wing Jewish organisations, such as Ateret Cohanim and Elad, to alter the city's demographics are included.
The report advises sanctions against people and groups involved in "settlement activity", and taking other measures to protest Israeli policy and to stop the harming of the Arab population, including an "EU presence at Israeli court cases on house demolitions or evictions of Palestinian families when there is a risk of demolition or eviction of Palestinian families", and "information sharing on violent settlers in East Jerusalem to assess whether to grant entry to the EU." The report also recommends implementing measures to strengthen the Palestinian National Authority's presence in the city. 
Archaeological excavations in Jerusalem near the Temple Mount are mentioned, suggesting "archaeology in this case has become an ideologically motivated tool of national and religious struggle carried out in a manner that modifies the identity and character of the city and threatens to undermine its stability."
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Israel "illegally annexing" east Jerusalem, EU reports