Israeli settlement construction on occupied land poses the most serious threat to the creation of a Palestinian state alongside Israel, European Union consuls general based in the region said in a report released on Wednesday.

The non-binding document by the EU diplomats in East Jerusalem and the West Bank, territory captured in a 1967 war, urged European states to be diligent in ensuring settlements are excluded from trade benefits enjoyed by Israel.

“Settlement construction remains the biggest single threat to the two-state solution. It is systematic, deliberate and provocative,” the report said.

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Israeli leaders have spurned international calls to stop settlement activity on land Palestinians seek for a future state. Citing historical and Biblical links to Jerusalem and the West Bank, Israel says it has a right to build there.

The report called for strict application of an EU-Israel trade pact to ensure products from settlements do not receive preferential treatment under the accord in European markets.

It also urged EU states “not to support … research, education and technological cooperation” and to discourage financial investment in Israeli businesses operating in occupied territory.

European countries, the report added, should consider barring entry to their territory of “known violent settlers”.

Yigal Palmor, an Israeli Foreign Ministry spokesman, called the report unhelpful to efforts to further peace in the region.

“A diplomat’s mission is to build bridges and bring people together, not to foster confrontation. The EU consuls have clearly failed in their mission,” he said.

Palestinian-Israeli peace talks broke down in 2010 after Israel ended a partial moratorium on construction in settlements.

Some 325,000 Jewish settlers live in the West Bank, home to 2.5 million Palestinians. Another 200,000 Israelis live in and around East Jerusalem, where 250,000 Palestinians reside.

The report identified construction in large urban settlements that lie between Jerusalem and the Palestinian West Bank town of Bethlehem as “the most significant and problematic plans” Israel is currently advancing.

Israeli Prime Minister Benjamin Netanyahu, defying international condemnation of settlement expansion, has also pledged to build some 3,000 settler homes in the so-called E1 corridor near Jerusalem.

The report said building in E1 “is set to cut off East Jerusalem from the rest of the West Bank”. Israel, which announced the project after the United Nations granted de facto recognition to a Palestinian state last November, has said construction in the area is at least a year away.

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