EU ready to boost Israel ties, wants peace progress

BRUSSELS (Reuters) - European Union states will say on Monday they are ready to deepen ties with Israel but will urge the Jewish state to make progress on Middle East peace, diplomats said.

EU foreign ministers are expected to give the green light to the upgrade at talks in Luxembourg, hours before a scheduled meeting there with Israeli counterpart Tzipi Livni.

Diplomats said EU member states had agreed a text on their readiness to enhance ties with Israel in social policy, access to the EU market and regulatory issues, including reference to the need for progress in peace steps with the Palestinians.

The wording of any linkage between moves to deepen ties and progress in the peace process was not immediately available.

The EU upgrade offer is more modest than proposals made last year by Israel which included summits of EU and Israeli leaders, and meetings with EU sectoral ministers on top of the current annual session at foreign minister level.

Israel currently has a seven-year-old "association agreement" with the 27-member bloc setting out a schedule of political meetings, regulating trade ties and areas of cooperation from internal security to education.

The move comes despite increased criticism from the EU and the United States of Jewish settlement activity in the occupied territories. U.S. Secretary of State Condoleezza Rice warned on Sunday it could hurt Israeli-Palestinian peace negotiations.

Palestinian Prime Minister Salam Fayyad wrote to Brussels last month urging the EU not to boost relations with Israel, whose settlements he said were a "flagrant disregard" of Palestinian rights.

(Reporting by David Brunnstrom and Paul Taylor; writing by Mark John; Editing by Catherine Evans)