Israel calls UK stance on settlements "painful"

LONDON (Reuters) - Israel accused Britain of a "painful attitude" on Wednesday for urging the European Union to make sure that goods made in Jewish settlements are not allowed into the bloc on preferential terms.

"It may make some people suffer, but the political value is more negative ... than anything else. It's not a serious move, but a painful attitude," Israeli President Shimon Peres told a news conference in London.

He was responding to a call by British Foreign Secretary David Miliband for an EU-Israel trade agreement to be strictly enforced.

The agreement allows goods made in Israel to be imported into the 27-nation EU at reduced or nil rates of customs duty.

However, products of Jewish settlements in the occupied West Bank are excluded from the benefits and must pay the full rate of duty.

A Foreign Office spokesman said there had been reports that the agreement was being circumvented and that some settlement goods may have been wrongly labeled as made in Israel.

Miliband, who visited Israel and the West Bank this week, was quoted by a British newspaper as calling during the trip for "the fair and proper implementation of the agreements on produce from this region."

"That means preferential trade for Israeli products, preferential trade for Palestinian products, but not preferential trade from the settlements," he said.

The Foreign Office spokesman said Britain wanted the trade agreement implemented and products of Jewish settlements labeled as such.

"Neither the UK nor the EU should do anything that inadvertently supports or encourages illegal settlement activity," he said.

U.S. Secretary of State Condoleezza Rice has called the settlements "an obstacle to peace."

Peres said there was an EU agreement.

"I think it would be strange to have 27 agreements on every issue, with all due respect. We negotiated very hard to find a compromise," he said.

Most workers in the settlements were Palestinians and if they were fired due to a crackdown on exports it would increase unemployment, said Peres, who is on a five-day visit to Britain.

Asked how he justified the suffering of Palestinians in the Gaza Strip, Peres said: "Why should they suffer? Let them stop shooting and they won't suffer."

Israel resealed border crossings with the Gaza Strip on Tuesday, blaming continued rocket fire at its towns, despite warnings from world aid groups of looming shortages of food and fuel in the coastal territory.

(Reporting by Adrian Croft; Editing by Mark Trevelyan)