The European Union on Monday condemned Israel's intent to continue building in east Jerusalem, saying it represents an obstacle to international peace efforts.
But former British Prime Minister Tony Blair, who is now a special Mideast representative, expressed confidence that despite the latest setbacks both the Israelis and Palestinians wanted the peace process to continue.
"The European Union has condemned all the settlement activities," said Spanish Foreign Miguel Angel Moratinos, whose nation holds the EU's rotating presidency. "We ask for a total freeze of settlement activity. We will pursue this policy."
The halt to settlement construction is a key demand by the Quartet of Mideast negotiators who are trying to restart negotiations between Israel and the Palestinians. Israel has agreed to curb settlement construction in the West Bank, but not in east Jerusalem, claiming the entire city as Israel's eternal capital.
Blair: Serious setbacks
Israel's tough stance on Jerusalem has also run into stiff opposition in Washington. Netanyahu is due to meet President Barack Obama on Tuesday to discuss the impasse.
"The Netanyahu announcement is completely, utterly unacceptable," Finnish Foreign Minister Alexander Stubb said.
Blair, who briefed the EU on the Quartet's meeting in Moscow last week, said the setbacks of the last couple of weeks have been very serious.
"But these setbacks occur, and the key thing is to get back on track," he said. "I believe that irrespective of the events of the last few days, both Israelis and Palestinians want to see this work."
Visiting Foreign Minister Avigdor Lieberman, who arrived in Brussels on Friday, was due to meet individually with the foreign ministers of Finland, Germany, Lithuania and Malta, but not with the entire 27-member body.
Lieberman was supposed to attend a joint EU-Israel committee meeting Monday, but this was postponed until next month because EU foreign policy chief Catherine Ashton visited Israel and Gaza last week.
The EU has denied that the postponement is meant as a snub to Lieberman. But relations between the bloc and the Jewish state have taken a turn for the worse in recent months.