Jerusalem: Israel slammed the European Union's decision to condition all future agreements with the Jewish state on its recognition of the West Bank, East Jerusalem and Golan Heights as occupied territories.

"We will not accept any external diktats on our borders and the issue of borders will be determined only in direct negotiations between the sides," said Israel's Prime Minister Benjamin Netanyahu in response to an EU guideline published last month.

The guidelines prohibits all the 28 member states of the EU from funding, cooperating, awarding of scholarships, research funds or prizes to anyone residing in the Jewish settlements in the West Bank and East Jerusalem.

The regulation, which comes into effect on Friday, requires that any agreement or contract signed by an EU country with Israel include a clause stating that the settlements are not part of Israel and therefore are not part of the agreement.

Netanyahu's response came following an urgent meeting at his bureau attended by Justice Minister Tzipi Livni, Economy and Trade Minister Naftali Bennett and Deputy Foreign Minister Ze'ev Elkin.

The Israeli Premier added that the European Union should focus on ending the civil war in Syria or halting Iran's nuclear programme, rather than exerting energy on Israel's settlements.

"As the prime minister of Israel, I will not let anyone harm the hundreds of thousands of Israelis living in Judea and Samaria, in the Golan Heights, or in Jerusalem – our united capital," he added.

A senior Israeli official earlier described EU's decision as an earthquake. "This is the first time such an official, explicit guideline has been published by the European Union bodies," the senior official told to an Israeli daily.

"Until today there were understandings and quiet agreements that the Union does not work beyond the Green Line now this has become a formal, binding policy," he added. The EU decision has also brought out differences within Netnyahu's cabinet with Livni describing the development as a wake-up call.

She added that it was unfortunate that Israel has arrived at this point, but hoped now that those who think the diplomatic stagnation can continue and who say Israel's position has never been better, will understand that Israel must work to begin negotiations with the Palestinians as the only way to safeguard Israel's interests.

(Agencies)

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