PARIS (Reuters) - French President Francois Hollande criticised a new Israeli settlement-building drive on occupied land on Monday as contrary to peacemaking with Palestinians but said Paris was not ready to impose sanctions on the Jewish state.
Speaking after Israel's envoy in Paris was summoned to the French foreign ministry, Hollande said he was "extremely concerned" by Israel's announcement that it would build 3,000 new settler homes in the West Bank and East Jerusalem, after a de facto U.N. recognition of Palestinian statehood.
"The measures announced are in opposition to dialogue and (Israel) should go back on them," Hollande said at a news conference with Italian Prime Minister Mario Monti in Lyon.
A French foreign ministry official had earlier dismissed reports that Paris could recall its envoy in Jerusalem and said France was looking at other ways of putting pressure on right-wing Israeli Prime Minister Benjamin Netanyahu.
When asked if trade sanctions could be an option for Paris, Hollande said France's priority was to encourage both parties to resume talks as soon as possible.
"We don't want to shift into sanctions mode. We are more focused on persuading. It's an important moment, but I appeal for responsibility."
According to the foreign ministry, France imports about 1 billion euros ($1.3 billion) of goods from Israel each year, making it the Jewish state's ninth biggest trade partner.
France and Britain, both U.N. Security Council members, have condemned Israel's plans to expand Jewish settlement, saying it would jeopardize international confidence in Israel's desire to make peace with Palestinians.
The foreign ministry said earlier on Monday it had told the Israeli ambassador that "settlements are illegal under international law, destroy confidence in reviving dialogue and constitute an obstacle to a fair peace based on a two-state solution."
Israel says it has a historical claim to land in the West Bank and to all of Jerusalem, while Palestinians want East Jerusalem as the capital of a future state. Israel captured the West Bank and East Jerusalem in a 1967 war.
Netanyahu has dismissed world condemnation of his latest settlement plans, which were announced on Friday just hours after the United Nations voted overwhelming to upgrade the Palestinians' diplomatic status. France broke from its main Western allies by voting in favor of the upgrade.
Israel said it would build thousands of new settler homes, including in a wedge zone between Jerusalem and the West Bank, known as E1, which Washington considers especially sensitive as it would fragment territory Palestinians want for a state.
Diplomatic sources said both London and Paris were considering the unprecedented step of recalling their ambassadors to Tel Aviv, but both countries signaled there was still room for maneuver to avoid a deep crisis with Israel.
"There are other ways in which we can express our disapproval," a French foreign ministry official told Reuters, declining to say what other measures were being considered.
Foreign ministry spokesman Philippe Lalliot said the Middle East peace process would be discussed at a European Union foreign minister's meeting on December 10.
($1 = 0.7689 euros)
Additional reporting by Elizabeth Pineau; Editing by Mark Heinrich