An EU report calls for member states to prevent support for the settlement enterprise.

An internal report issued by the EU recommends that member states completely prevent financial transactions that support settlement activity in Judea and Samaria. The report, entitled “Jerusalem 2012,” was compiled by the heads of European Union missions to Jerusalem and Ramallah.

According to the report, Israel’s construction in the southern neighborhoods of Jerusalem is the greatest threat to the two-state solution and defines it as “systematic, deliberate and provocative.”

The report notes three neighborhoods specifically: Har Homa, Gilo and Givat Hamatos, warning that if construction there continues at the present rate, it may create by the end of this year a buffer zone between East Jerusalem and Bethlehem. The report argues that such a buffer, when completed, would make it difficult to implement the two-state solution, and might mean its demise altogether.

Israel’s relations with the 27-member EU have been extremely tense in recent months, as the European organization has been voicing its discontent over a long list of Israeli construction programs involving construction of at least 5,000 new homes in and around East Jerusalem.

The EU is Israel’s largest import and export market, and should it implement punitive trade sanctions it would affect the already stumbling economy of the Jewish State.

According to the report, tenders were issued for 2,366 new units in 2012, which was “more than twice” the total number issued over the preceding three years—only 1,145, the report said.

Most of them were for construction in Har Homa, “significantly expanding the existing footprint of the settlement’s built-up area.”

Israel liberated East Jerusalem during the 1967 Six Day War and later annexed it, a move which is yet to be recognized by the international community. In fact, most Western countries, including most notably the U.S., don’t even fully recognize West Jerusalem, within the 1949 armistice “green line,” as Israel’s capital—preferring to keep their embassies in Tel Aviv.

Israel officially considers all of Jerusalem its “eternal, undivided” capital and rejects the view that construction in the eastern sector as settlement building.

But since the Palestinians want East Jerusalem to become the capital of their state, they— along with many in the international community—consider settlement construction in East Jerusalem and Judea and Samaria to be equally illegal.

This is born by an erroneous reading of the Geneva Convention Rule 130: “States may not deport or transfer parts of their own civilian population into a territory they occupy.” Technically speaking, the area formerly known as “West Bank” was never recognized widely as belonging to the state of Jordan, whose army occupied it in 1948. Since the area remained as a no man’s land until 1967, Israel’s taking of it did not constitute an occupation.

U.S. official policy refers to the area, as well as to Gaza, as “disputed territories.”

“If the implementation of the current Israeli policy regarding the city continues, particularly settlement activity, the prospect of Jerusalem as a future capital of two states — Israel and Palestine — becomes practically unworkable,” the EU report’s executive summary said. “This threatens to make the two-state solution impossible.”

The first totally new Israeli-built neighborhood in eastern Jerusalem since Har Homa will soon be approved, introducing 2,610 Israeli homes to an area called Givat HaMatos.

The plan does not represent a widening out of existing Jewish neighborhoods, but rather creates something totally new.

The area is located between Beit Safafa and Talpiot.  Peace Now, which called the project a “mini-E1″,  decried the decision on its website: “The new neighborhood will complete the isolation between Bethlehem and East Jerusalem, and will destroy any possibility of a territorial solution in Beit Safafa and Shurafat. The Geneva Initiative proposed border will not be possible without dismantling the new Israeli neighborhood.”

Once the plan is given final approval, construction of the homes will begin.

Peace Now noted that “it does appear that the Givat Hamatos plan may allow some expansion of the existing Palestinian neighborhood of Beit Safafa on the lands that are privately owned by Palestinians.”

           Predictably, the recent Israeli announcements about new construction in Har Homa in Jerusalem and the West Bank drew sharp criticism from the Palestinians and the Obama administration.

The common theme was that such actions were impediments to the resumption of negotiations between Israel and the Palestinians leading to a settlement of their longstanding dispute.

From the Palestinians, who can be expected to try to milk every situation, this is not surprising. The fact that they are insisting – thanks to President Obama – on an announced complete construction freeze and Israeli acceptance of pre-1967 lines as preconditions for any resumption of talks was to be expected, if not welcomed.

But what of the Obama administration which is supposed to be an honest broker?

As we point out in our second editorial this week, the Palestinian Authority is underwriting, if not fostering, Palestinian terror against Jews. It has also plainly accepted as a given the continued viability of Hamas as an element in any agreement despite the requirement of the so-called road map that the PA must dismantle the terrorist infrastructure. And of course until President Obama mentioned his support for it, the Palestinians never insisted on a freeze as such a big deal. Moreover, the almost year-long construction freeze declared by Israel – which the PA had not even insisted on until Mr. Obama made it an issue – never drew a reciprocal gesture from the Palestinians.

To be sure, the U.S. reaction to the construction announcements was relatively muted. A comment by a State Department spokesman on the Ariel approvals was revealing: “These kinds of actions are counterproductive to the resumption of direct negotiations. We have raised this issue with the Israeli government. We will continue to make our position known.”

The State Department’s statement on the issuance of housing permits in East Jerusalem was similarly low key:

The United States is deeply concerned by continuing Israeli actions with respect to housing construction in Jerusalem. We have raised this issue with the Israeli government and continue to make our position known. As we have said before, unilateral actions work against efforts to resume direct negotiations and contradict the logic of a reasonable and necessary agreement between the parties, We believe that through good faith direct negotiations, the parties should agree on an outcome that realizes the aspirations of both parties for Jerusalem and safeguards its unique religious status for people around the world.

            No fire and brimstone, though we duly note the reference to a deal that “realizes the aspirations of both parties for Jerusalem.” What was needed was a clear statement from the U.S. that the Palestinians need to be more forthcoming and stop pursuing their unilateral September UN recognition ploy in place of substantive negotiations.

   Their column appears every other week.