JERUSALEM, Nov. 24 - The European Union's diplomatic representatives in East Jerusalem and Ramallah have sharply criticized Israel's policies in East Jerusalem, saying they "are reducing the possibility of reaching a final-status agreement on Jerusalem that any Palestinian could accept."
In an unpublished report presented to European Union foreign ministers, the representatives recommend a more aggressive European stance toward Israeli policies in East Jerusalem, whose annexation by Israel has not been recognized by the European Union or the United States.
The report, a copy of which was sought by The New York Times and obtained from someone who wanted to publicize it, accuses Israel of increasing illegal settlement activity in and around East Jerusalem and of using the route of its separation barrier "to seal off most of East Jerusalem, with its 230,000 Palestinian residents, from the West Bank" and to create a "de facto annexation of Palestinian land."
In general, the report asserts, "prospects for a two-state solution with East Jerusalem as the capital of Palestine are receding," and it warns that "Israeli measures also risk radicalizing the hitherto relatively quiescent Palestinian population of East Jerusalem."
The European Union diplomats, who deal with the Palestinians, made a number of recommendations, including having political meetings with Palestinian Authority ministers in East Jerusalem instead of in the West Bank, as they currently do, and requesting Israel "to halt discriminatory treatment of Palestinians in East Jerusalem, especially concerning working permits, building permits, house demolitions, taxation and expenditure."
Last Monday in Brussels, European Union foreign ministers issued a statement expressing "grave concern" about Israeli policies "in and around East Jerusalem, including construction of the separation barrier, settlement building and house demolitions."
But the ministers decided not to release or acknowledge the report at a delicate time in European-Israeli relations, instead asking for a "detailed E.U. analysis on East Jerusalem to be adopted and made public" at their next meeting in mid-December. European countries, as well as the United States, keep embassies to Israel in Tel Aviv, while maintaining consulates in East Jerusalem and Ramallah to deal with the Palestinians.
Marc Otte, the European Union's special representative to the Middle East peace process, played down the report, saying that it was a routine response to a request to keep foreign ministers apprised of trends in East Jerusalem. The ministers also request and receive reports about Kosovo and Iran, he said.
"There was no report on the table," Mr. Otte said in an interview. "There's nothing exceptional or extraordinary about it. It's not like ministers of foreign affairs lie awake at night thinking about a report on East Jerusalem. They get lots of reports."
Mr. Otte emphasized that with the European Union plan to put observers in Gaza to monitor the Rafah crossing between Egypt and Gaza - starting on Saturday - the European Union "is actively involved in helping disengagement with people on the ground and a lot of money."
The Europeans know that most Israelis regard them as pro-Palestinian, an attitude that the East Jerusalem report is bound to reinforce. But Mr. Otte said that the Europeans had serious criticism of the Palestinians, too, especially on the topic of security and terrorism.
Europe is committed to the document known as the road map as the only path toward peace, he said.
"There is no European crusade here," he said. "Our relations with Israel are very improved, more operational and pragmatic. But it's our obligation as a member of the quartet to monitor events on the ground." Israeli officials would only speak anonymously because they had not seen the report and it is still an internal European Union document.
"The foreign ministers decided not to publish the report and not to act on it now," a senior Israeli Foreign Ministry official said. "Officially, it's an egg not born yet, and our assessment is that with the Israeli election campaign starting this week and the good moment of European involvement in Rafah, the Europeans decided that this is not the right moment to open up Jerusalem as an issue."
The official acknowledged that Israel and Europe disagreed about the legal status of East Jerusalem and of Jewish settlements within it.
Israel does not regard the Jewish inhabitants of East Jerusalem as settlers. Israel seized East Jerusalem from Jordan in the 1967 Arab-Israeli war and later annexed it, promising that the city would never again be divided. Both the Europeans and the United States oppose any measures that would prejudge the outcome of a peace treaty, including the status of East Jerusalem.
"We claim full sovereignty over Jerusalem, and the Europeans think East Jerusalem is occupied territory," the official said. "But to say that the timing is wrong is an understatement. My guess is that it will be put aside."
What exercises Israeli officials is the suggestion that European diplomats and ministers renew contacts with Palestinian Authority ministers in East Jerusalem, and not in Ramallah. In the past, European envoys met Palestinian politicians at the Orient House in East Jerusalem, but after a terrorist attack in 2001, Israel shut down all Palestinian Authority institutions in East Jerusalem.
The first stage of the dormant road map calls for these Palestinian institutions to be reopened. But Israel remains strongly opposed to the idea.
The report says that Israel is making it increasingly difficult for Palestinians to travel between East Jerusalem and the West Bank. "Israel's main motivation," the report asserts, "is almost certainly demographic - to reduce the Palestinian population of Jerusalem, while exerting efforts to boost the number of Jewish Israelis living in the city."
The report is particularly explicit about what it terms "increasing settlement activity" in three areas in and around East Jerusalem.
The first area is formed by new Jewish neighborhoods in the Old City and in the surrounding Palestinian neighborhoods, including Silwan, Ras al-Amud, Wadi al-Joz and Sheik Jarrah. The second is in existing East Jerusalem neighborhoods running from Ramot and French Hill through the new Israeli neighborhoods to East Talpiot, Har Homa and Gilo. And the third is in "greater Jerusalem," which links the city to the settlement blocs of Givat Ze'ev to the north, Maale Adumim to the east and Gush Etzion to the south.
The Israeli prime minister, Ariel Sharon, says the larger settlement blocs will remain a part of Israel in any final settlement.
