EU ready to boost Israel ties, wants peace progress

LUXEMBOURG (Reuters) - The European Union said on Monday it was ready to strengthen ties with Israel, but urged it to make progress on Middle East peace and criticized it for building more settlements in the occupied territories.

"The European Union is determined to develop a closer partnership with Israel," EU foreign ministers agreed in Luxembourg before meeting Israeli Foreign Minister Tzipi Livni whose country is pressing for significantly closer ties.

This has been opposed by Arab states and the Palestinian Authority especially because of Israel's settlement program in the occupied territories.

The EU ministers stressed that closer ties needed to be set in a context "which notably includes the resolution of the Israeli-Palestinian conflict through the implementation of the two-state solution," according to a text obtained by Reuters.

EU External Relations Commissioner Benita Ferrero-Waldner said it remained to be seen how much linkage there would be between progress in the peace process and closer ties.

The EU text said the bloc wanted gradually to strengthen cooperation in areas such as social policy, give the hi-tech Israeli economy better access to the EU market and cooperate more closely on regulatory issues.

It raised the prospect of ministers getting together in the margins of the U.N. General Assembly and "ad hoc" meetings between the director-general of Israel's foreign ministry and EU ambassadors.

But this fell short of proposals last year by Israel foreseeing regular summits of EU and Israeli leaders and meetings with EU sectoral ministers, in addition to a current annual session at foreign minister level.

Israel has a seven-year-old "association agreement" with the EU setting out a schedule of political meetings, regulating trade ties and areas of cooperation including internal security.

"AMBIGUOUS"

Ferrero-Waldner said the wording on the linkage between progress in the peace process and closer ties was "rather ambiguous ... Now we start the process and we will have to see."

"The Israelis of course have a big list of wishes ... We in the EU want to see an enhancement in the relations, but at the same time we have to reflect very carefully on things."

"Any consideration of bilateral EU-Israel relations must take into account the overall situation," she told a news conference.

Ferrero-Waldner criticized Israel's settlement building in the occupied territories which she said posed a grave risk "to both the political process and also the possibility of a future Palestinian state."

The EU text also called for progressive removal of Israeli restrictions on movement and access in the West Bank. It called on all parties to work urgently for the reopening of Gaza crossings.

Palestinian Prime Minister Salam Fayyad last month said Israel's settlements were a "flagrant disregard" of Palestinian rights and urged the EU not to boost ties with Israel.

An Israeli official said Israel was satisfied with the outcome of the EU deliberations: "It's enough for us to claim victory," he said.

(Additional reporting by Mark John; Editing by Ingrid Melander and Richard Balmforth)