In a confidential report obtained by AFP on Thursday, the European Union accused Israel of actively pursuing the annexation of Arab East Jerusalem and undermining hopes for peace with Palestinians.

The annual report drafted by the EU heads of missions in Jerusalem accused Israel of implementing in 2009 an intricate policy which includes expanding Jewish settlements and demolishing Palestinian homes in east Jerusalem.

"Developments in East Jerusalem in 2009 were marked by the continued expansion of Israeli settlements and a considerable number of Palestinian house demolitions and eviction orders," said the report, published first by Israel's Haaretz daily.

Israel occupied and annexed East Jerusalem in 1967 and considers it its "eternal indivisible capital" in a move never recognized by the international community.

"Israel is, by practical means, actively pursuing its illegal annexation of East Jerusalem by weakening the Palestinian community in the city, impeding Palestinian urban developments and ultimately separating East Jerusalem from the rest of the West Bank."

The future of East Jerusalem, which the Palestinians want to make the capital of their promised state, is one of the most sensitive issue in Middle East peace talks, which have been suspended for almost a year.

The 14-page report dated November 23 said that Israel's policy in east Jerusalem is "an integral part of a broader Israeli strategy." It goes on to accuse the Israeli government and Jerusalem municipality of supporting and assisting private right-wing Jewish organizations of strengthening the Jewish hold in and around the Old City.

-AFP/NOW Lebanon