The EU has said it will will bar financial assistance to Israeli groups operating in the occupied territories, underlining its concern that Israeli settlement-building harms prospects for peace with the Palestinians.

Guidelines revealed on Tuesday make clear that, from next year, Israeli "entities" operating in the territories will not be eligible for EU grants, prizes or loans.

The measure will apply to Israeli companies, universities or other bodies operating in areas occupied by Israel since the 1967 war, including the Golan Heights, the West Bank and East Jerusalem.

"The EU has made it clear that it will not recognise any changes to pre-1967 borders, other than those agreed by the parties to the Middle East peace process," a copy of the guidelines seen by the Reuters news agency said.

'No external dictates'

The guildelines say that all Israeli groups applying for financial assistance, scholarships and funding must prove they do not operate in the occupied territories.

Israeli Prime Minister Benjamin Netanyahu criticised the guidelines, telling ministers: "We shall not accept any external dictates on our borders. That is an issue that will be decided only in direct negotiations between the sides."

Netanyahu said the EU appeared to have a distorted sense of priorities.

"I would expect those who concern themselves with peace and stability in the region to only debate such an issue after resolving problems which are slightly more urgent, such as the Syrian civil war or Iran's race to obtain nuclear weapons," a statement from his office said.

Palestinians praised the rule as a concrete step against settlement construction they fear will deny them a viable state.

Hanan Ashrawi, a senior member of the Palestine Liberation Organisation, said the EU had moved beyond "statements, declarations and denunciations" over Israel's settlement policy and made a "qualitative shift" that would improve peace prospects.

Source: Agencies