BRUSSELS, Belgium: The European Union urged incoming Israeli premier Benjamin Netanyahu on Sunday to craft a government that embraces the long-standing goal of an independent Palestinian state living side by side with Israel.

The prospect of a new hawkish Israeli government, with far-right hard-liner Avigdor Lieberman as a possible foreign minister, will be seen in Europe as a setback to the Middle East peace process.

"Let me say very clearly that the way the European Union will relate to an (Israeli) government that is not committed to a two-state solution will be very, very different," said Javier Solana, the EU's foreign and security affairs chief.

U.S., European and moderate Arab officials have largely remained silent about the possibility of Lieberman becoming Israel's top diplomat. But as Netanyahu is in the final stages of crafting a coalition government based on the Feb. 10 election outcome that prospect could become a reality this week.

Solana and other EU officials met with the foreign ministers of Egypt and the Palestinian authority to discuss the formation of a Palestinian unity government ? bringing the rival Hamas and Fatah factions under one roof ? and rebuilding the Gaza Strip after Israel's recent offensive.

Hamas says power-sharing talks with its Palestinian rival Fatah are stuck on disagreements over the political program of a future government.

Palestinian Foreign Minister Riad Malki said the international community must not remain silent about the prospect of a far right Israeli government. Lieberman has said Palestinian prisoners should be drowned in the Dead Sea, that Israeli-Arab lawmakers meeting with Palestinian militants should be executed and that the president of Egypt could "go to hell."

"The international community has to take its responsibility and also to address this issue very seriously," Malki told a new conference after the talks at the EU.

Lieberman's Yisrael Beitenu movement emerged as the third-largest party in Israeli parliament in last month's vote with a platform that would require members of Israel's Arab minority to swear loyalty to the Jewish state or lose their citizenship.

EU and American officials fear his outspokenness will do nothing to revive the stalled peace process. European diplomats say Mideast peace is only possible through a two-state solution.

"We hoped to see an agreement (on a Palestinian unity government) before the end of the month," said Karel Schwarzenberg, the Czech Foreign Minister, who chaired the talks. He added such a government must abide by past peace commitments "and we expect the same respect ... from the new government of Israel."

He added there can be no rebuilding of the Gaza area unless Israel opens its border crossings to the area that was devastated in the recent war.

Egyptian Foreign Minister Abul Geit told reporters the "reconciliation talks" between the Fatah movement, which controls the West Bank, and Hamas, which runs Gaza, "are making progress." He did not elaborate.

The EU also hopes to prevent the smuggling of arms into Gaza that are used for cross-border attacks on Israeli towns.

Israel is counting on international help to prevent militants from Hamas and other groups from getting the weapons. The rocket bombardments spurred Israel's Gaza punishing offensive which ended in January, and diplomats hope to prevent another round of fighting.