The Israeli government is concerned that the European Union might try to convince its member nations to implement sanctions against Israel over building projects beyond the Green Line.

Haaretz this week revealed that possible sanctions appear in a document prepared by the Middle East department of the EU's foreign service.

Among the measures proposed are steps that have been mentioned in the past, such as labelling produce from the settlements and limiting research and development co-operation with Israel funded by a multi-million-euro EU budget.

New suggestions include changes to the free trade agreement with Israel, measures against European firms working in the settlements and even the possibility of recalling envoys from Israel.

The document also details various ways in which the EU could upgrade the status of the Palestinian Authority if the diplomatic process does not move forward in the near future. These include recognising the PA as a state and supporting its membership of international organisations.

It is still unclear whether the new EU foreign policy chief, Federica Mogherini, who visited Israel two weeks ago, is preparing to endorse the document, which was written under her predecessor, Catherine Ashton. It is also far from certain that Brussels would be capable of convincing European governments to go ahead with the sanctions should Ms Mogherini decide to do so.

Israel's Foreign Minister, Avigdor Lieberman, said: "There is no room to create a linkage between the bilateral relations between Israel and the EU and the situation of the relations between and the Palestinians."