A leaked report has revealed that that  the 25 European Union missions in Jerusalem and Ramallah are urging Brussels to treat East Jerusalem as the future capital of a Palestinian state. The report also calls for an EU presence at the demolitions of Palestinian homes, and intervention when peaceful protesters face arrest. The confidential policy document, prepared last month by the EU consuls-general, warns that Jewish settlement activity on occupied Palestinian land is making a two-state solution to the conflict increasingly difficult.

"The continued expansion of settlements, restrictive zoning and planning [and] ongoing demolitions and evictions... have not only serious humanitarian consequences, they undermine the Palestinian presence in East Jerusalem," the report says.

The diplomats recommend "specific actions" to bring EU actions in the occupied territory in line with the bloc's stated policy on East Jerusalem. The recommendations include:

• EU officials and politicians should refuse to visit Israeli government offices or facilities located in occupied East Jerusalem
• Israeli settlers who forcibly move into Palestinian areas of Jerusalem could be refused entry into EU countries
• A boycott of Israeli products from East Jerusalem
• Ensuring an EU presence when there is a risk of demolitions or evictions of Palestinian families, and at Israeli court cases on demolitions or evictions
• Ensuring EU intervention when Palestinians are arrested or intimidated by Israeli authorities for peaceful cultural, social or political activities in East Jerusalem

EU officials have not publicly commented on the leaked report, which was drawn-up for the EU's main foreign policy-making body. It is unclear if or when the recommendations will be adopted or implemented. European criticism of Israeli policy and settlements on occupied Palestinian land is not new, says the BBC's Wyre Davies in Jerusalem. But with a conclusion that Israel was "systematically undermining the Palestinian presence" in Jerusalem, the policy document could further strain relationships between Israel and the EU.