By Adrian Croft
BRUSSELS (Reuters) - The European Union, over Israeli protests, said on Friday it was pushing ahead with plans to bar EU financial aid to Israeli organizations operating in the occupied territories, but insisted the decision would not affect peace efforts.
New European Commission guidelines on EU financial support were published in the EU's Official Journal as planned, despite intense lobbying by Israeli Prime Minister Benjamin Netanyahu, who has denounced them as meddling in Israel's relations with the Palestinians.
Under the guidelines, Israeli "entities" operating in the occupied territories will not be eligible for EU grants, prizes or loans starting next year.
The Israeli government discussed its concerns over the EU rules with the British and French ambassadors and the German deputy ambassador on Thursday, an Israeli official said.
"This was an invitation, not a summons, to exchange views on the EU directive. We expressed our censure of the move - not least because it was a violation of the express assurance we had from the EU that Israel would first be consulted about it," the official told Reuters.
The Israeli government kept up its criticism of the EU move, with Finance Minister Yair Lapid saying it would bolster Palestinians who balk at direct peacemaking with Israel.
"This isn't just hypocrisy, it's also stupidity ... They (the EU) came along and did a service for the most extremist forces in Palestinian society," he told Israel's Channel Two TV.
The EU guidelines will apply to Israeli companies, universities or other bodies operating in areas occupied by Israel since the 1967 Middle East War, including the Golan Heights, the West Bank and East Jerusalem.
The move was intended to underline EU opposition to Israeli settlement-building and its stance that it will not recognize any changes to Israel's pre-1967 borders, except those agreed to by both Israelis and Palestinians in peace talks.
After news of the Commission's intentions emerged earlier this week, Netanyahu raised concerns over the EU's plan with European Commission President Jose Manuel Barroso and leaders of EU members France, Greece, Austria and Malta.
Netanyahu also raised the issue with U.S. Secretary of State John Kerry, who visited the region this week to try to secure a resumption of Israeli-Palestinian peace talks.
European Commission spokeswoman Pia Ahrenkilde Hansen said Kerry had been in touch with both Barroso and EU foreign policy chief Catherine Ashton about the proposed EU guidelines in recent days but she gave no details.
Ashton sought to calm concerns over the guidelines, saying that they reiterated the EU's "long-held position that bilateral agreements with Israel do not cover the territory that came under Israel's administration in June 1967."
"In no way will this prejudge the outcome of peace negotiations between Israelis and Palestinians ... The EU ... fully supports Secretary Kerry's intense efforts to restart negotiations at a particularly delicate stage," she said in a statement.
The EU's decision could make it politically difficult for the Jewish state's pro-settlement government, which has called the pre-1967 boundaries indefensible, to sign accords with the 28-nation EU.
Palestinians praised the rules as a concrete step against settlement construction they fear will deny them a viable state.
Some 500,000 Israelis have settled in the West Bank and East Jerusalem among about 2.5 million Palestinians. Palestinians seek a state in the West Bank and Gaza Strip, with East Jerusalem as its capital.
(Additional reporting by Dan Williams in Jerusalem; Editing by Michael Roddy)
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