The EU will offer Israel upgraded trade and diplomatic relations in more than 60 areas at a high-level meeting in Brussels on Tuesday, just weeks after European foreign ministers warned that Israeli policies in the West Bank "threaten to make a two-state solution impossible".

In advance of the annual EU-Israel Association Council on Tuesday meeting, a diplomatic source shared with the Guardian details of the package of benefits that will be offered to Avigdor Lieberman, Israel's foreign minister.

The EU will widen its relationship with Jerusalem on a range of areas including migration, energy and agriculture. It will remove obstacles impeding Israel's access to European government-controlled markets and enhance Israel's co-operation with nine EU agencies, including Europol and the European Space Agency.

The wide-ranging boost to bilateral relations stops just short of the full upgrade that was frozen after Israel's invasion of the Gaza Strip in January 2009.

One senior EU diplomat, speaking on condition of anonymity, said that despite private complaints of the inconsistency of chastising Israel with one hand while rewarding it with the other, not one minister was prepared to oppose Tuesday's agreement.

"I was struck by the fact that a whole range of relations was offered to Israel – at the request of Israel – as if nothing is happening on the ground," the diplomat said. "Most ministers are too afraid to speak out in case they are singled out as being too critical towards Israel, because, in the end, relations with Israel are on the one hand relations with the Jewish community at large and on the other hand with Washington – nobody wants to have fuss with Washington. So [ministers] are fine with making political statements but they refrain from taking concrete action."

The Brussels-based bureaucrat points out that Europe's 500 million consumers constitute almost 60% of Israel's trade and are an under-utilised bargaining tool.

"The only possible tool for the EU to make Israel change its behaviour is to use the weight and power of these relations," he said. "We should be using [Tuesday's] dialogue to get what we want, which is Israel's compliance with its obligations under international law."

Catherine Ashton, the EU's high representative for foreign and security policy, a particularly voluble critic of Israel's expansion into the West Bank, which is illegal under international law, has taken the unusual step of delegating representation at Tuesday's meeting to Erato Kozakou-Marcoullis, the Cypriot foreign minister.

As recently as 8 June, she issued a statement deploring Israeli prime minister Binyamin Netanyahu's decision to build an additional 800 settlements in occupied territory – compensation for the 17 Israeli families the country's high court had ordered to be removed from the Migron settlement.

"Settlement activity is detrimental to current peace efforts, including by the Quartet [the UN, EU, US and Russia], and puts those efforts at risk," she said.

On 14 May, the EU's 27 foreign ministers unanimously condemned Israel's demolition of Palestinian homes, its continuing settlement expansion and the rise of settler violence against Palestinians – which the UN says has leapt by 150% in the past year, largely due to the impunity of Israeli perpetrators. EU officials argue that far from a package of rewards, Tuesday's agreement constitutes part of an existing action plan to promote co-operation, in progress since 2000. But while all 60 agreements in the package may have been discussed previously, they are being made concrete for the first time this week. In its entirety, this is the most significant package offered to Israel since the upgrade in relations was frozen.

Among the most controversial is the addition of areas of co-operation in the Agreement on Conformity, Assessment and Acceptance of industrial products, or ACAA – a deal first agreed in principle two years ago. In this agreement, the EU formally accepts for the first time the authority of Israeli ministers over goods produced in West Bank settlements.

The package also promises to "further bilateral co-operation" between Israel and key EU agencies, including the EU's Judicial Co-operation Unit and the European Police Office.

Paul Hirschson, a spokesman for the Israeli ministry of foreign affairs, admits the EU and Israel may have their differences, but, dismissed the idea of trade sanctions as nonsensical:

"Both sides would suffer terribly if we start throwing eggs at each other. With Greece and Spain imploding, it doesn't make sense for the EU to do anything to damage trade with anyone at this point," Hirschson said, pointing out that two-thirds of Israel's imports are bought from EU member states.

"The upgrade process may be frozen but both parties are finding ways to increase cooperation when it suits them," he added.