Netanyahu this week said his future government would negotiate peace with the Palestinians, but made no mention of a policy aim long backed by both the United States and Europe.
Asked how a failure to commit to the goal would affect EU-Israel ties, Czech Foreign Minister Karel Schwarzenberg, whose country currently holds the rotating presidency of the EU, said: "Relations would become very difficult indeed. At one of our next ministerial meetings we would have to discuss what consequences the EU would draw from that."
Speaking after EU talks, Schwarzenberg did not elaborate but Luxembourg's Jean Asselborn said a long-mooted upgrading of EU-Israeli trade and political ties depended on Israel achieving a peace deal with the Palestinians.
"We must tell the Israelis that it is not allowed to walk away from the peace process... The upgrading process was always to be viewed from the perspective of the peace process having been completed," Asselborn told reporters.
The EU already put talks on an upgrade of ties with Israel on hold in January after the IDF's offensive in the Gaza Strip.
Netanyahu plans to present his new coalition government for parliamentary approval next week.
"We Europeans are insisting that whatever the weighting is in the two governments (Israeli and Palestinian), the creation of a two-state solution must stand first and foremost," German Foreign Minister Frank-Walter Steinmeier said.
"We should not always have to start from the beginning again -- that is my urgent appeal," he told reporters at talks with EU counterparts in the Czech Republic.