The European Union on Monday slammed Israel over its plans to expand Jewish settlements beyond the Green Line, especially in the contentious E1 area east of Jerusalem. The union’s Foreign Affairs Council did not announce any concrete sanctions against Israel, but hinted that it could consider punitive measures in the future if Jerusalem did not reconsider its controversial decisions.

“The European Union is deeply dismayed by and strongly opposes Israeli plans to expand settlements in the West Bank, including in East Jerusalem, and in particular plans to develop the E1 area,” the union’s Foreign Affairs Council, which met Monday in Brussels, stated. ”The E1 plan, if implemented, would seriously undermine the prospects of a negotiated resolution of the conflict by jeopardizing the possibility of a contiguous and viable Palestinian state and of Jerusalem as the future capital of two states. It could also entail forced transfer of civilian population.”

Seeking to promote a two-state solution of the Israeli-Palestinian conflict, the EU ministers said they will “closely monitor the situation and its broader implications, and act accordingly.”

The EU considers Israeli settlements beyond the Green Line illegal under international law and an obstacle to peace.

The Foreign Ministry in Jerusalem said it regretted the EU’s statement, saying it was one-sided and rewards the Palestinian unwillingness to resume peace talks with Israel.

“Facts and history both prove that Jewish settlement never constituted an obstacle to peace,” the ministry said in a statement. “The root cause of the absence of a peace accord is the Palestinian refusal to engage in direct negotiations and their unwillingness to recognize Israel as the nation-state of the Jewish people, as recently exemplified by Mahmoud Abbas’ UN speech and Khaled Mashaal’s Gaza speech. This one-sided position taken by the EU rewards rejectionism and does not contribute to promoting a permanent peace agreement.”

Although there was speculation that Monday’s EU meeting would produce a series of harsh sanctions against Israel, including a landmark decision to begin boycotting imported Israeli products manufactured in settlements beyond the Green Line, the council’s resolutions contain no such provisions.

“The European Union continues to oppose boycotts, including boycotts of settlement products,” David Kriss, the press manager for the EU delegation to Israel, told The Times of Israel last week.

On Monday, the EU foreign ministers merely reiterated their “commitment to ensure continued, full and effective implementation of existing European Union legislation and bilateral arrangements applicable to settlement products.”

Israeli goods that originate from the areas Israel gained in 1967 are excluded from certain customs benefits that products from Israel proper enjoy. Some analysts had expected the EU would seek to punish Jerusalem for settlement expansion plans by hinting at the possibility to push forward a plan to label goods imported from the West Bank.

“The European Union expresses its commitment to ensure that — in line with international law — all agreements between the State of Israel and the European Union must unequivocally and explicitly indicate their inapplicability to the territories occupied by Israel in 1967, namely the Golan Heights, the West Bank including East Jerusalem, and the Gaza Strip,” the council resolution states.

The Israeli decision to expand settlement development, including in the E1 tract –a strip of land connecting the capital to the Ma’aleh Adumim settlement to the east, which is seen by some as vital to maintaining a contiguous Palestinian territory in the West Bank – sparked a slew of international responses last week, and Israeli ambassadors to countries the world over, most notably in several European countries — Britain, France, Spain, Sweden, Finland, Ireland, Denmark and Italy, as well as the EU itself — were summoned by their host nations for sharp dressing-downs.

Israel’s announcement that it would unfreeze plans to develop the E1 zone drew harsh criticism from some of Jerusalem’s closest allies, including the US. Europe slammed the settlement plans as damaging to the peace process, with Britain reportedly threatening to recall its ambassador.

Ahead of the meeting on Monday, Swedish Foreign Minister Carl Bildt said Europe’s political view of the Mideast has changed profoundly because of Israel’s advancement of plans, causing ”extreme concern.”

“What the Israelis did on E1 has shifted opinions in Europe,” Bildt said as he arrived for the meeting. “I don’t think the Israelis are aware of this.”

Yet Jerusalem pushed the settlement plan further along in the planning pipeline last week and keeps on vowing to go ahead with the plan.

“The test of leadership is not in how to concede on vital interests in order to win the applause of the international community. The test of leadership is in how not to concede on vital interests and in withstanding international pressure,” Prime Minister Benjamin Netanyahu said on Sunday evening.

Speaking to foreign reporters on Monday, Netanyahu again rebuffed calls to freeze his settlement expansion plans, saying that he only intends to build in areas that everyone accepts will be part of Israel in a future peace deal. He said that he did not understand how people can say that building up E1 makes a future Palestinian state impossible. “It’s simply false,” he said. “It’s not a new policy and it does not prejudice the final outcome of a peace agreement.”

Meanwhile, Palestinian Authority President Mahmoud Abbas said he would seek United Nations Security Council help in blocking the construction.

The EU foreign ministers on Monday called on Abbas “to use constructively” Palestine’s new status as a nonmember observer state at the UN, urging him “not to undertake steps which would deepen the lack of trust and lead further away from a negotiated solution.” Palestinian leaders have repeatedly threatened to drag Israel in front of the International Criminal Court over alleged war crimes.

The EU council conclusions also called on Jerusalem to avoid any steps that could weaken the PA’s financial situation. In response to Abbas’s unilateral step to apply for nonmember state status at the UN, Israel has threatened to withhold tax money it collects on behalf of the PA, as regulated by the Oslo Accords.

“Any such action by Israel would undermine existing cooperation mechanisms between Israel and the Palestinian Authority and thus negatively affect the prospects of negotiations,” the EU foreign ministers stated. ”Contractual obligations, notably under the Paris Protocol, regarding full, timely, predictable and transparent transfer of tax and custom revenues have to be respected.”