The EU has threatened to take action against settlers after Israel backed the building of 1,466 more Jewish homes on Palestinian land in the West Bank.

EU countries said in a joint communique on Thursday (5 June) the move is “unhelpful to peace efforts” and called on Israel to “reverse the decision”.

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They added that if it doesn't, they will “act accordingly” and “fully and effectively implement existing legislation in relation to settlements”.

The threat refers to plans to publish a code of conduct for EU retailers on how to label settler-made products - a move likely to fuel consumer boycotts and to harm Israel’s image.

It is part of a tougher new approach which EU diplomats say the US endorses.

The US state department also on Thursday said: “We’re deeply disappointed; again, difficult to understand how these [settlements] contribute to peace.”

Israel announced the new housing units as a price tag for Palestine’s formation of a unity government.

The government is backed by Palestine’s two main political factions, Fatah and Hamas, which used to be bitter rivals. But it is composed of technocrats and does not contain anyone from Hamas, which the EU and US call a “terrorist” entity because it advocates armed resistance.

The EU and US earlier this week snubbed Israel by saying they will work with the new Palestinian cabinet.

Israel’s housing minister, Uri Ariel, himself a far-right settler, said the new housing units come because "when Israel is spat upon, it has to do something about it".

Israeli Prime Minister Benjamin Netanyahu said: “Hamas is a terrorist organisation that calls for Israel's destruction, and the international community must not embrace it".

He has also said he supports a two-state solution and freed dozens of Palestinian prisoners in recent peace talks. But at the same time, he endorsed the building of 14,000 new settler homes, prompting the talks to break down.

“The fact settlement activity increased after the peace talks were launched last July shows it was a political decision,” the EU’s envoy in Jerusalem, John Gat-Rutter, recently told EUobserver.

“It’s quite obvious that the issue on [product] labelling will come even more to the forefront if the kind of settlement expansion that we have seen in the recent year continues in the future,” the EU’s ambassador in Tel Aviv, Lars Faaborg-Andersen, said.