Israel will not enter into any new agreements with the EU under the terms of the recently published settlement guidelines, diplomatic sources said Thursday following a meeting on the matter chaired by Prime Minister Binyamin Netanyahu.

However, Netanyahu is to speak in the coming days with EU foreign policy chief Catherine Ashton to seek a formula that would make it possible for Israel to begin negotiations with the EU on entrance into the lucrative 80 billion euro Horizon 2020 R&D program.

The guidelines prohibit any EU funds in the form of grants, prizes and financial instruments from being used by Israeli entities outside the 1967 lines, and mandates that a territorial clause must be incorporated into any future agreement that will stipulate that the West Bank, east Jerusalem and the Golan Heights are not part of Israel.

Israel has annexed east Jerusalem and the Golan Heights, and Israeli law prohibits discriminating against Israeli companies or firms beyond the Green Line. It is legally problematic, therefore, for Israel to invest money in a program, and then, when it gets money back from that program, not to be able to invest it in institutions beyond the Green Line.

The guidelines were published last month, and are not to come into effect until January 1. However, the issue is pressing now because Israel and the EU are scheduled to begin talks on Horizon 2020 on Wednesday.

Horizon 2020 is the EU’s innovation flagship program meant to create jobs and fuel economic growth. Israel is the only non-EU country that has been asked to join as a full partner, and is expected to pay some 600 million euros over the next seven years to take part. This is considered a worthwhile investment, because for every euro Israel contributes, it is expected to get back 1.5 euros in research funds and other inbound investments.

The sources said that Israel would ask for further clarifications about the guidelines, but that an EU professional-technical team was expected to arrive Wednesday to begin negotiations. In the conversation with Ashton, Netanyahu is expected to say that if no agreement can be found, Israel will not be able to participate.

The issue is expected to be a major focus of attention when German Foreign Minister Guido Westerwelle comes to Jerusalem early next week. Israel is interested in getting the political leadership of the EU involved so it can influence the bureaucrats who, in Jerusalem’s estimation, pushed the whole guideline issue forward in the first place.

On the day the guidelines were published in mid June, Ashton issued a statement inviting Israel to hold discussions on “the territorial scope of agreements with the EU that are currently under preparation.”

Thursday’s meeting was, in addition to Netanyahu, attended by Finance Minister Yair Lapid, Justice Minister Tzipi Livni, Education Minister Shai Peron, Economy Minister Naftali Bennett, Science, Technology and Space Minister Yaakov Peri, Agriculture Minister Yair Shamir and Deputy Foreign Minister Ze’ev Elkin.

One source said that the majority of the ministers at the meeting were in favor of engagement with the Europeans over Horizon 2020, and of working out the language during those talks, but that Netanyahu said he first wanted to discuss the matter with Ashton.

The source said, however, there was consensus among the ministers that the EU guidelines significantly damaged the diplomatic process with the Palestinians.

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