By Kylie MacLellan
LONDON (Reuters) - Britain can no longer rely on U.S. leadership on Middle East policy and must work more closely with Europe to ensure the Iran nuclear deal stays in place, among other policies, a committee of lawmakers said in a report on Tuesday.
The deal between Iran and six major powers restricts Tehran's nuclear program in exchange for the lifting of international oil and financial sanctions.
During his U.S. presidential campaign, Donald Trump called the agreement "the worst deal ever negotiated" and his administration has launched a review of whether lifting sanctions is in the United States' national security interests.
"We can no longer assume America will set the tone for the West's relationship with the Middle East," said David Howell, chairman of the British parliament's House of Lords International Relations Committee.
In its report, the committee cited in particular Trump's approach to Iran and to the Arab-Israeli conflict.
"The new U.S. administration has the potential to destabilize further the region ... The U.S. President has taken positions that are unconstructive and could even escalate conflict," it said.
It said it was not an option for Britain to reduce its engagement in the region as exports to the Middle East are worth more than to China and India combined and investment into the UK from the region was "extremely significant".
The report said Britain should work with its European partners on steps to ease restrictions on banks lending money for investment in Iran and to help develop new trade relationships, with Iran a priority for post-Brexit trade.
While Trump was unlikely to try to destroy the nuclear deal, failing to ease sanctions would push Iran towards more extensive trade relations with powers such as China and Russia, it said.
The report also said Britain should distance itself from the United States' "destabilising postures" on the Arab-Israeli conflict and give serious consideration to recognising Palestine as a state to show it is committed to the two-state solution.
Trump rattled Arab and European leaders in February by indicating he was open to a one-state solution, upending a position taken by successive administrations and the international community.
He later said he liked the concept of a two-state solution but stopped short of reasserting a U.S. commitment to eventual Palestinian statehood.
"The resolution of the Israeli-Palestinian dispute must remain high amongst British foreign policy priorities," the report said. "The government should be more forthright in stating its views on these issues despite the views of the U.S. administration."
(Reporting by Kylie MacLellan; Editing by Catherine Evans)