Israel began a bilateral dialogue with the European Union this week over scientific co-operation while at odds with it over separate, new guidelines.

These limit investments and grants to within the pre-1967 borders and stipulate that Israel does not have sovereignty over East Jerusalem, the West Bank and the Golan Heights. The Israeli government has said it will not sign any agreements under these guidelines.

Prime Minister Benjamin Netanyahu held a high-level meeting last Thursday to assess the implications of the new guidelines. According to diplomats and legal experts, Israeli companies or universities with any kind of activity across the Green Line, even if this is not funded by the EU, will not be able to receive EU research funds.

This will affect universities that run archaeology digs in Jerusalem and the West Bank and many Israeli hi-tech companies with research and production facilities at the Har Hotzvim industrial park on the Green Line.

Horizon 2020 — the new research co-operation programme currently under discussion — was to go into effect next year. The agreement would have seen Israel investing 600 million euros in European ventures and the EU in return investing 900 million euros in Israeli research and development projects.

Horizon 2020 is one of a number of lucrative programmes now in jeopardy. Another is the Career Integration Grant which encourages academics and researchers working abroad to return to their own countries by giving them a research grant of 100,000 euros. Israel is one of the main beneficiaries of this programme and, so far, 336 Israeli researchers have returned to work in Israel to take up the grant.

Despite the government’s attempts to convince the EU leadership that the new guidelines are harmful to the peace process that restarted this week — and the fundamental Israeli claim that future borders must be decided in negotiations with the Palestinians and not by international pressure — Israelis are highly pessimistic about the chances of the EU revoking the new guidelines.

Despite assertions by some ministers that Israel should relinquish its research ties with the EU and seek agreements with India or China instead, Mr Netanyahu decided that the talks over the new joint projects would go ahead.

He is hoping that a compromise can be reached whereby European money would not be used across the Green Line but could be given to universities and companies that operate on both sides of the pre-1967 borders.

On Monday, Mr Netanyahu told reporters, after a meeting with German Foreign Minister Guido Westerwelle in Jerusalem, that the EU guidelines “have actually undermined peace. They’ve hardened Palestinian positions, they seek an unrealistic end… and I think they stand in the way of reaching a solution, which will only be reached by negotiations by the parties, and not by an external diktat.”