The European Union criticised Israel on Monday for what it called continued settlement activity on Palestinian land, while Prime Minister Ehud Olmert was still in Paris after a Euro-Mediterranean summit.

A statement issued by the French EU presidency said the 27-nation bloc was "deeply concerned" by an Israeli decision to issue a call for tenders for new housing units in Arab East Jerusalem and the occupied West Bank.

"This decision serves to undermine the credibility of the ongoing diplomatic process," the EU statement said.

The statement, while Olmert was in Paris to attend France's Bastille Day military parade and meet U.N. Secretary-General Ban Ki-moon, appeared to be a consolation to Palestinian President Mahmoud Abbas.

Palestinian officials said Abbas was angered by the failure to mention Israeli settlements and the occupation of Palestinian land in the final communique of the 43-nation founding summit of the Union for the Mediterranean on Sunday.

However, Israeli officials said the information on which the EU statement was based was either inaccurate or not new.

The statement referred to a decision to issue a call for tenders for the construction of 920 housing units in the settlement of Har Homa, south of Jerusalem, and of 884 housing units in the settlement of Pisgat Zeev, north of Jerusalem.

In June, the Israeli Housing Ministry approved construction of 763 units in Pisgat Zeev plus 121 units in Har Homa, which the Palestinians call Jabal Abu Ghneim in June.

The Jerusalem District Planning and Construction Committee gave preliminary approval last week to 920 housing units in Har Homa, in a move that fell short of issuing tenders. The plan still requires approval by a Jerusalem local council, where the public can lodge objections.

The EU said it was illegal under international law to build settlements anywhere in the occupied Palestinian territories, including East Jerusalem.

"Settlement activities prejudge the outcome of final-status negotiations and compromise the viability of a concerted two-state solution," it said.

Olmert and Abbas met with French President Nicolas Sarkozy on Sunday after the Israeli leader said afterwards the two sides had never been so close to a possible peace agreement.