The European Union has approved new rules for the labelling of products made in Israeli settlements on occupied Palestinian land.

Key points: EU says exports from areas occupied by Israel must specify "settlement" on the label

EU says exports from areas occupied by Israel must specify "settlement" on the label The EU says it does not recognise lands captured by Israel in the 1967 war

The EU says it does not recognise lands captured by Israel in the 1967 war Israel's leaders strongly condemns the decision while Palestine's approves

Brussels said the move is technical, but Israeli prime minister Benjamin Netanyahu responded by saying the EU "should be ashamed" of the decision, while another minister claimed it is "disguised anti-Semitism".

Drawn up over three years by the European Commission, the EU's executive branch, the guidelines mean Israeli producers must explicitly label farm goods and cosmetics that come from settlements when they are sold in the European Union.

Israeli officials were briefed ahead of the decision.

"This is a technical measure, not a political one," one Commission source who declined to be named said.

"The occupied territory is not part of the sovereign state of Israel, so goods cannot be sold as 'Made in Israel'."

The EU does not recognise Israel's occupation of the West Bank, Gaza, East Jerusalem and the Golan Heights, lands it captured in the 1967 Middle East war.

It said the labelling policy aims to distinguish between goods made inside the internationally accepted borders of Israel and those outside.

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Britain, Belgium and Denmark already affix labels to Israeli goods differentiating between those from Israel and those, particularly fruits and vegetables, that come from the Jordan Valley in the occupied West Bank. Now all 28 EU member states will have to apply labels.

The new guidelines state that "since the Golan Heights and the West Bank (including East Jerusalem) are not part of the Israeli territory according to international law, the indication 'product from Israel' is considered to be incorrect and misleading".

"Expressions such as 'product from the Golan Heights (Israeli settlement)' or 'product from the West Bank (Israeli settlement)' could be used," it added.

If an Israeli company refuses apply the label, a retail outlet has the authority to do so, as the European Commission has sufficient information about where goods come from.

Israel condemns, Palestine applauds

Mr Netanyahu said the decision "brings back dark memories" and that "Europe should be ashamed of itself".

"Of the hundreds of territorial conflicts around the world [Europe] decided to single out Israel alone while it's finding its back against the wall against a wave of terror," he said in an official address posted online. "This will not advance peace."

A worker places export stickers on wine bottles at Shiloh Wineries. ( Reuters: Baz Ratner )

Israeli foreign affairs spokesman Emmanuel Nachshon slammed the EU decision, labelling it "discriminatory".

"Under the guise of a bureaucratic decision, what we see here is a political attempt to change the reality on the ground," he said.

Israel's ambassador to the European Union, David Walzer, warned it could make difficult peace talks between Israel and the Palestinians harder and the EU might no longer be a welcome broker.

"We made it very clear that we welcome EU contributions to the peace process," Mr Walzer said before the decision was formalised. "This might force us to reconsider that."

Israeli energy minister Yuval Steinitz called the labelling measure "disguised anti-Semitism".

Israel has since said it will be suspending a number of, or scheduled, EU meetings due to the decision.

Palestinian lawmaker Moustapha Barghouti welcomed the move.

"It confirms the illegality of Israeli settlements and confirms that Israeli production inside the occupied territories is illegal," he said.

The Palestine Liberation Organisation's negotiations affairs department said on Twitter: "EU labelling of settlement products is a step in the right direction but insufficient."

A second Commission source said the guidelines were requested by EU governments who sought clarity on existing EU labelling rules and that the five page document of some 12 paragraphs did not constitute new legislation.

Since 2004, Israeli settlement products have not benefited from trade preferences to the European Union, while for all countries the EU has agricultural legislation that requires labelling of the origin of fruit, vegetables and honey.

Industrial goods, including processed food, are not subject to mandatory labelling under EU law, but can be voluntary.

Israel's Economy Ministry estimates the impact will be about $71 million a year, affecting fresh produce such as grapes and dates, wine, poultry, honey, olive oil and cosmetics.

That is around a fifth of the $280 to $425 million worth of goods produced in settlements each year, but a drop in the ocean next to the $42 billion of goods and services Israel exports to the EU annually, a third of all its exports.

ABC/wires