Meeting on Friday to agree on the EU's first constitution, the leaders also approved a deal clinched by its main military powers, France, Germany and Britain, on a military planning cell for crisis management operations, which was watered down during weeks of negotiation amid US suspicions of its impact on NATO. 

The leaders also endorsed a multi-billion-euro plan to encourage public and private investment into transport and research projects in an attempt to revitalise the European economy. 

Warning

Italian Prime Minister Silvio Berlusconi warned that crunch talks aiming to hammer out a first-ever EU constitution may have to be postponed until next year.

The warning on Friday, perhaps designed to concentrate the minds of bickering EU leaders, came amid fears the talks could collapse into a fiasco that would leave the bloc facing crisis as it expands from 15 to 25 countries. 

Berlusconi, who said it could take a "miracle" to strike a deal at a two-day summit scheduled to end on Saturday, warned that the central dispute on the issue of national voting rights could block accord. 

"The vote system is a rock on which the whole deal could run
aground," he told reporters. "If the (negotiations) cannot be concluded by Sunday morning, which is the deadline we have fixed, it would be better to continue (talking) than to make a bad deal," he said. 

"We cannot accept a cut-price deal," Berlusconi said, indicating the constitutional debate could stretch into the EU's Irish presidency next year. 

Disputes

The summit - scheduled to last two days but which some fear could turn into a marathon haggle through the weekend - aims to agree on a constitution that will streamline the European Union's decision-making process after it expands to 25 members next May, and further in coming years. 

Among the disputes are the composition of the European Commission - the EU's executive branch - the powers of a new EU president and whether the charter should refer to God. 

But the key sticking point is expected to be the refusal by
Spain and Poland to surrender the generous voting rights they
secured at an EU summit in Nice in 2000. 

Highlights of new EU constitution
 
PRESIDENT OF EUROPEAN COUNCIL:
New two-and-a-half year job, proposed to replace the EU's current six-month rotating system.

COUNCIL OF MINISTERS: Group of three countries to chair ministerial councils (such as agriculture, home affairs, transport, etc.) for 18 months, under overall control of new president.

EUROPEAN COUNCIL: Gathers leaders of member states. To meet four times a year. To take decisions by consensus, unless constitution provides otherwise.
 
EUROPEAN COMMISSION:
Draft constitution calls for slimming down the executive after next year's enlargement to 15 voting commissioners and 10 non-voting ones

QUALIFIED MAJORITY VOTING (QMV): All but the most sensitive EU decisions to be decided by a majority of member states representing at least three-fifths of the EU population. Poland and Spain fighting hard to retain QMV system agreed in EU's Nice Treaty. Changes in foreign affairs, defense, tax, immigration, asylum and border controls will still require unanimity.
 
MUTUAL DEFENCE CLAUSE:
EU countries would be bound to come to each's other defense in case of attack, though neutral countries may be exempted.
 
EU LEGISLATION:
EU law shall have primacy over national legislation.

LEGAL STANDING: The constitution establishes the EU as a legal body with power to sign international treaties
 
ROLE OF RELIGION:
"The Union respects and does not prejudice the status under national law of churches and religious associations or communities in the Member States."

SUSPENSION CLAUSE: If one member state seriously flouts the bedrock EU values, the rest could decide by a qualified majority to suspend it
 
EXIT CLAUSE:
The constitution sets out for the first time in EU law that a member state can leave the bloc if it so chooses.

Under the Nice Treaty, Madrid and Warsaw won the right to 27 votes each in EU decision-making, just two votes fewer than Germany, which is twice their size in population terms. 

Voting rights

But the EU's draft constitution, hammered out over 17 months, reduces their voting rights and thus the power they will wield
within the bloc. 

The text says EU decisions will in future need a "double majority" to be approved. That means proposals will require the support of half the EU states representing at least 60% of the population. 

Spanish Prime Minister Jose Maria Aznar and his Polish counterpart Leszek Miller are refusing to budge, saying the changes will entrench the power of the four EU heavyweights: Britain, France, Germany and Italy. 

The Italian leader promised on Wednesday to unveil a compromise to break the deadlock, but only at the last minute.

Agreements

European Union leaders agreed on Friday that Bulgaria and Romania should be allowed to join the bloc in January 2007 if memberships negotiations were completed in time. 

It was the first time the EU had confirmed a specific month as a target entry date for Sofia and Bucharest. 

"Welcoming Bulgaria and Romania in January 2007 as members of the union, if they are ready, is the common objective of the union of 25," the EU leaders said in a document released during the summit.

The EU leaders also agreed to consider lifting their arms embargo on China imposed after the crushing of pro-democracy demonstrations in 1989.

"Thanks to a proposal by the French president, we asked the
foreign affairs council to review the question of the embargo on selling arms to China,"  Berlusconi told a news conference.