Israeli diplomatic officials privately heaved a sigh of relief Tuesday when the EU - after a week of intensive deliberations - adopted a statement on the Middle East that stopped short of recognizing east Jerusalem as the capital of a future Palestinian state. Publicly, however, Jerusalem took pains not to claim any type of victory. Instead of calling for a resumption of negotiations that would lead - as the original Swedish draft phrased it - to a Palestinian state "comprising the West Bank and Gaza with east Jerusalem as its capital," the EU instead called for "negotiations to resolve the status of Jerusalem as the future capital of two states." Although on the surface the difference does not look that significant, one official pointed out that calling for Jerusalem as the capital of two states is something that numerous EU leaders have done in the past, including such friends as Germany's Angela Merkel and France's Nicolas Sarkozy, while defining east Jerusalem as a capital of a future Palestinian state would have broken new diplomatic ground. The final text, hammered out at a meeting in Brussels attended by the EU's 27 foreign ministers, also expunged a reference to the Palestinian Authority as "Palestine," and gave more credit than the original text to Prime Minister Binyamin Netanyahu for his declaration of a 10-month housing-start moratorium in the West Bank. "Encouraging further concrete confidence building measures, the Council takes positive note of the recent decision of the Government of Israel on a partial and temporary settlement freeze as a first step in the right direction and hopes that it will contribute towards a resumption of meaningful negotiations," the new text reads. However, the text did not, as Israel had hoped, call on the Palestinians to return immediately to negotiations. This omission was highlighted in the statement released by the Foreign Ministry, following the EU's publication of the text. "The Statement by the Council of Foreign Ministers of the European Union ignores the primary obstacle to achieving a resolution between Israel and the Palestinians: the Palestinian refusal to return to the negotiating table," the statement said. "Given the Israeli government's efforts to renew the negotiations, Israel regrets that the EU has chosen to adopt a text that, although containing nothing new, does not contribute to the renewal of negotiations." The statement then went on to welcome the new text, while slamming the Swedes for putting forward an "extreme" proposal. "In light of the extreme draft originally presented by the Swedish presidency at the start of discussions, Israel does welcome the fact that at the end of the process the voices of the responsible and reasonable EU states prevailed, balancing and improving the text," the statement said. The Foreign Ministry statement acknowledged that the new text took notice of measures Israel has taken to enable a renewal of negotiations, called for an end to arms smuggling into Gaza, and reiterated its commitment toward Israel's security and integration into the region. Foreign Minister Avigdor Lieberman, who is expected to thank his Italian counterpart Franco Frattini for that country's support in fending off the Swedish draft when Frattini visits Jerusalem on Wednesday, said he was "satisfied that the EU foreign ministers did not accept the harsh and one-sided decision that was originally proposed. "The decision that states that the central issues in a final arrangement between Israel and the Palestinians will be determined only in negotiations between the sides represents a slight improvement in positions put forward by Europe in the past," he said. Lieberman added that Israel appreciated those countries that led the effort to prevent passage of a resolution that he said would have stiffened the Palestinian position and "harmed efforts to renew negotiations." Among the leading countries who worked against the Swedish proposal were Italy, the Czech Republic, Romania, Hungary, Poland and - to a certain degree - France and Germany. The Swedes were supported in efforts to get the proposal passed by England, Ireland, Luxembourg and Portugal. "The bottom line," one senior diplomatic official said, summing up the bruising diplomatic battle that he said had undoubtedly damaged Israeli-Swedish bilateral ties, was that the Europeans "more or less returned to their traditional positions. "There is very little that is new here," the official said, "but the whole process was unnecessary and left a bad taste in our mouth." He said that in the end the EU "saved itself," because it would no longer had been considered a serious player in the region by Israel if it had adopted the original text. Jerusalem Mayor Nir Barkat, meanwhile, completely rejected the EU decision, according to a statement issued Tuesday afternoon. Barkat said the decision posed "real danger" for the future of Jerusalem, saying it would "never work." The mayor noted that the recent celebration of the 20th anniversary of the reunification of Berlin reminds everyone that no divided city in the history of the world has functioned properly. Opposition leader Tzipi Livni on Tuesday said she was "troubled" the resolution, and that it was "not good for Israel." She noted that she had discussed the original Swedish version with both the Swedish foreign minister and the French president. "The decision also exposes and underlines a no less important issue - that less than a year ago, negotiations [with the Palestinians] were held without freezing construction" in the West Bank, Livni added, in reference to Netanyahu's moratorium on new settlement construction. Palestinian Authority Prime Minister Salam Fayyad welcomed the EU statement, which he said gave the Palestinians "a better sense of hope and possibility about tomorrow." The Palestinians had lobbied as hard for the Swedish proposal as Israel had lobbied against. A senior aide to Palestinian Authority President Mahmoud Abbas also welcomed document. "We hope that Israel agrees to the principles contained in the statement, because this is the right way to launch serious negotiations," said Yasser Abed Rabbo. AP contributed to this report.