The prime minister in the Knesset on Tuesday
Palestinian Prime Minister Mahmoud Abbas
Asked to comment on Netanyahu's call for the Palestinian leadership to recognise Israel as the national state of the Jewish people, a spokeswoman for EU diplomatic chief Catherine Ashton said: "We support the two democratic states living side by side in peace and security.
"We also stress that the future states of Palestine and Israel will need to fully guarantee equality to all their citizens," she added.
"Basically in the case of Israel this means whether they are Jewish or not," said spokeswoman Maja Kocijancik.
Israel's mainly right-wing government voted overwhelmingly on Sunday in favour of controversial legislation requiring non-Jewish citizens to swear allegiance to the country as a Jewish state.
Netanyahu subsequently offered a freeze on settlement building in exchange for Palestinian recognition of Israel's Jewish identity.
But the offer was rejected out of hand by the Palestinians, who said it had "nothing to do with the peace process," and was also widely slammed by Israeli politicians and commentators as a political ploy to sabotage peace talks.
A renewal of the ban on Jewish settlement building on occupied Palestinian land, which expired on September 26, is largely seen as the key to reviving the moribund peace talks which began three weeks earlier.
Despite huge diplomatic pressure to reimpose the freeze, especially from Washington, Netanyahu has refused to do so, while Palestinian President Mahmoud Abbas has said he will hold no further talks until the building stops.
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