JERUSALEM (AP) -- A senior European official on Wednesday painted an alarming picture for Israel if Mideast peace efforts fail, saying the country could face deepening economic isolation if it presses forward with construction of Jewish settlements.
The comments by EU Ambassador Lars Faaborg-Andersen were the latest salvo in an increasingly contentious war of words between Israel and the European Union over settlement construction. Last week, Israeli Prime Minister Benjamin Netanyahu accused the EU of unfairly singling out Israel for settlement construction while ignoring Palestinian transgressions.
A small but growing number of European businesses and pension funds have begun to drop investments or limit trade with Israeli firms involved in the West Bank settlements. While Europe is interested in improving already close ties with Israel, Faaborg-Andersen said momentum for further sanctions could grow if peace efforts fail.
"We have made it clear to the parties that there will be a price to pay if these negotiations falter," he said. "If Israel were to go down the road of continued settlement expansion ... I'm afraid that what will transpire is a situation in which Israel will find itself increasingly isolated, not necessarily because of any decision taken at a governmental level but because of decisions taken by a myriad of private economic actors." He said this could include companies, pension funds or consumers who shun settlement goods.
Faaborg-Andersen said such action has resulted from commercial considerations and a growing focus on "corporate social responsibility."
But he said European officials have also held debates on possible EU-wide actions, such as labeling or even banning settlement products exported to Europe. Some individual countries have already imposed labeling laws.
"I think it's well known that these are some of the issues that we have been discussing and that we have been looking into, making certain preparations for," he said. Though no decisions have been made, he said calls to take action are "gaining momentum every time there is a settlement announcement here."
Gad Propper, an Israeli business leader who chairs the Israel-European Union Chamber of Commerce and Industry, said the impact of boycott calls has been limited so far. But he stressed "the quicker Israel and the Palestinians reach a two-state solution the better" because "if the situation will not change then the threats will increase."
Israeli settlement construction has emerged as a key stumbling block in peace efforts. The Palestinians claim east Jerusalem and the West Bank, areas captured by Israel in the 1967 Mideast war, as parts of a future independent state. With more than 550,000 Israelis living in those areas, the Palestinians say time is quickly running out on hopes to divide the land.
Under intense U.S. pressure, the Palestinians dropped a longstanding demand for a settlement freeze when peace talks resumed last July. But they say they received assurances that Israel would show restraint.
Netanyahu says he made no such guarantees, and his government has pushed forward plans for several thousand new settlement homes since the talks began.
The international community, including the United States and European Union, considers the settlements to be illegal or illegitimate, and U.S. Secretary of State John Kerry has said Israeli construction raises questions about its commitment to peace.
The European Union has said that if talks fail because of settlement construction, it will hold Israel responsible. "They are illegal under international law. They make a two state-solution more difficult, and they undermine trust in a peace process," Faaborg-Andersen said.
European countries have become increasingly outspoken in its criticism of the settlements. Last year, Israel was forced to guarantee that any money it receives under a technology-sharing pact with the EU will not be spent in the West Bank or east Jerusalem. And last week, several EU members summoned local Israeli ambassadors to protest settlement construction.
Israel responded by summoning locally based European ambassadors to voice its displeasure, and Netanyahu accused the EU of hypocrisy by singling out Israel while ignoring alleged Palestinian incitement against Israel.
Israel's deputy foreign minister, Zeev Elkin, said Wednesday that he had met with Faaborg-Andersen and expressed his "disappointment" over what he called the EU's one-sided approach toward Israel.
"While they are condemning us with every construction announcement," said Elkin, "there is no declared condemnation about the shooting attacks from Gaza or the escalation in the region."
EU officials say they routinely condemn Palestinian attacks and incitement. They also have warned the Palestinians that European countries are suffering from "donor fatigue" after spending billions of dollars in aid with limited tangible results.
Ian Deitch contributed reporting.