The PA economy minister on Thursday welcomed an EU report calling for economic sanctions on Israeli settlements in the West Bank.

The leaked non-binding document by European Union consul generals in East Jerusalem and the West Bank said the 27-nation bloc should be diligent in ensuring settlements are excluded from trade benefits enjoyed by Israel.

Jawad al-Naji welcomed the EU's recognition of settlements as an obstacle to the two-state solution. In a statement, the minister warned that Israel misleadingly labeled settlement produce as "Made in Israel"

He added that PA consumer protection crews had seized tons of settlement produce from West Bank markets this year. The Ramallah government announced its boycott of settlement produce in early 2010, which includes a ban on working in settlements and trading in settlement-made goods.

PLO negotiator Saeb Erekat also welcomed the report and called on all European countries to adopt its recommendations, during a meeting with the British consul in Ramallah on Thursday.

In the internal report sent to Brussels earlier in February, the EU consuls said settlement construction remained "the biggest single threat to the two-state solution.

"It is systematic, deliberate and provocative," the report said.

Israeli leaders have repeatedly spurned international calls to stop settlement activity on land Palestinians seek for a future state.

The report denounced Israel's treatment of Palestinians in East Jerusalem. It also urged EU states "not to support ... research, education and technological cooperation" and to discourage investment in Israeli firms operating in occupied territory.

European countries, the report added, should consider barring entry to their territory of "known violent settlers".

Yigal Palmor, an Israeli Foreign Ministry spokesman, said the document would not help efforts to further peace.

"A diplomat's mission is to build bridges and bring people together, not to foster confrontation. The EU consuls have clearly failed in their mission," he said.

The report identified construction in large urban settlements that lie between Jerusalem and Bethlehem as "the most significant and problematic plans" that Israel was currently advancing.

Israeli Prime Minister Benjamin Netanyahu, defying international condemnation, has also pledged to build more than 3,000 settler homes in the so-called E1 corridor near Jerusalem.

The report said building in E1 "is set to cut off East Jerusalem from the rest of the West Bank". Israel, which announced the project after the United Nations granted de facto recognition to Palestine last November, has said construction in the area is at least a year away.