Future agreements between the European Union and Israel must include the explicit exclusion of Jewish settlements in the West Bank or East Jerusalem, according to a new EU directive described by an Israeli official as an "earthquake".
The EU guidelines, adopted on 30 June, will prohibit the issuing of grants, funding, prizes or scholarships unless a settlement exclusion clause is included. Israeli institutions and bodies situated across the pre-1967 Green Line will be automatically ineligible.
The Israeli government will be required to state in any future agreements with the EU that settlements in the West Bank and East Jerusalem are outside the state of Israel.
The directive, part of the 2014-20 financial framework, covers all areas of co-operation between the EU and Israel, including economics, science, culture, sports and academia. It does not cover trade, such as produce and goods originating in settlements.
An EU statement said the guidelines "set out the territorial limitations under which the commission will award EU support to Israeli entities … Concern has been expressed in Europe that Israeli entities in the occupied territories could benefit from EU support. The purpose of these guidelines is to make a distinction between the state of Israel and the occupied territories when it comes to EU support."
The move follows a decision by EU foreign ministers last December that "all agreements between the state of Israel and the EU must unequivocally and explicitly indicate their inapplicability to the territories occupied by Israel in 1967". All Israeli settlements are illegal under international law.
"The EU is trying to force Israel to adopt its position on settlements," said an Israeli official. "Israel will have to explicitly express in writing the EU's position. We don't believe the EU's position should be forced down our throats like geese." He said it was impossible for Israel to agree to such a demand.
The directive would affect "all realms of co-operation", he added, and would result in "rising tension and increased friction" and "create a lot of bad blood".
Another Israeli official told Haaretz, which disclosed the new guidelines, the move was an "earthquake" which unprecedentedly turns "understandings and quiet agreements that the [EU] does not work beyond the Green Line" into "formal, binding policy".
Senior Palestinian official Hanan Ashrawi welcomed the guidelines. "The EU has moved from the level of statements, declarations and denunciations to effective policy decisions and concrete steps which constitute a qualitative shift that will have a positive impact on the chances of peace," she said.
"The Israeli occupation must be held to account, and Israel must comply with international and humanitarian law and the requirements for justice and peace."
The new requirements would affect the EuroMed Youth agreement, under negotiation, which involves joint youth projects and exchanges, said Haaretz.
Another example would be applications from Israel to the EU's research and technical development programme, an EU source told the Guardian.
Israel has become increasingly concerned about the EU adopting a more robust stance against settlements. Some member states are pressing for an EU-wide policy of labelling produce and goods originating in settlements to allow consumers to make informed choices on purchases.
The directive was a "big mistake", Ze'ev Elkin, Israel's deputy foreign minister, told Army Radio. "This is more fuel for Palestinian rejectionism."
Another minister, Silvan Shalom, said: "Once again, Europe has demonstrated just how detached it is, how it can't really be a full partner to the negotiations."
The directive emerged as the US secretary of state, John Kerry, arrived in the region on his sixth visit in a drive to restart peace negotiations between Israel and the Palestinians. He is expected to meet the Palestinian president, Mahmoud Abbas, in Amman on Tuesday.
Unusually, Kerry is not scheduled to visit Jerusalem or meet with the Israeli prime minister, Binyamin Netanyahu. Some analysts have suggested this is because Israel has signed up to Kerry's parameters for a resumption of talks, but he still needs agreement from the Palestinian side.
However, an unnamed Israeli minister was reported by Israel Radio as saying that Netanyahu's primary objective was merely to show willingness to negotiate and that he did not intend to engage in a far-reaching peace process.