Israel condemns EU exclusion rules over settlements
Israel has condemned new European Union guidelines banning EU funding of projects in territories occupied by Israel since the 1967 Middle East war.
From 2014, such agreements with Israel will exclude East Jerusalem, the West Bank, Gaza Strip and the Golan Heights.
Israeli minister Silvan Shalom said the measure was a "big mistake" which cast doubt on the EU's impartiality in the Israel-Palestinian conflict.
Palestinian official Hanan Ashrawi welcomed it as a "significant move".
Under the guidelines, which come into effect on Friday, Israeli projects applying for EU funding will be required to sign a clause to state that it will not apply to the occupied territories.
Palestinians want to establish a state in the West Bank and Gaza, with a capital in East Jerusalem.
About 500,000 Jews live in more than 100 settlements built in the West Bank and East Jerusalem. The settlements are considered illegal under international law, though Israel disputes this.
Peace talks stalled in 2010 over the issue of Israeli settlements. Palestinians are demanding a freeze on building in settlements as a pre-condition to return to talks, while Israel says talks should resume unconditionally.
The guidelines relate to grants, prizes and other funding from the EU budget.
A spokesman for the European delegation in Tel Aviv told the Associated Press news agency that the "territorial applicability clause" would not affect Israel's private sector, but rather bodies like research centres or non-governmental organisations.
Israel reacted angrily to the move, warning it would do nothing to help achieve peace.
"Europeans are making a big mistake once again. They always would like to play a key role in the peace process but once again they are showing us that they cannot play a key role because they don't have a balanced attitude towards the Israeli-Palestinian conflict," Mr Shalom told the BBC.
"If they would like really to help the peace process, they should not come with those decisions and those ideas. I would like to remind my friends the Europeans, that... the Israeli government in the past took many decisions to evacuate settlements and they didn't need Europeans to show them what to do."
The Palestinians though said the issuing of the guidelines was a positive step.
"The EU has moved from the level of statements, declarations and denunciations to effective policy decisions and concrete steps which constitute a qualitative shift that will have a positive impact on the chances of peace," said Ms Ashrawi.
"The Israeli occupation must be held to account, and Israel must comply with international and humanitarian law and the requirements for justice and peace."