The European Union has strongly criticised the Israeli Government's plans for a barrier in the West Bank.
Palestinians say the barrier will cause hardship
The EU also raps other actions by Israel which, it says, make life intolerable for Palestinians, in a strongly-worded statement.
It says the continued building of Israeli settlements in the West Bank is an obstacle to peace.
But Israeli officials deny any damage to EU-Israeli relations and vow to continue forging partnerships.
The EU statement has challenged the heart of the Israeli government's policies.
It calls for the dismantling of the barrier through the territories, which the Israeli Government says is needed to stop devastating suicide attacks.
The Europeans say that the barrier is already cutting thousands of Palestinians off from essential services.
They say that it could make a two-state solution physically impossible.
But Oded Eran, Israeli Ambassador to the EU, says he does not think the comments represent what amounts to a crisis between the EU and Israel.
"The partnership and co-operation [between Israel and the EU] when you look at the figures and span of activities, cannot be described as being in crisis," he told the BBC's Europe Today programme.
"There is a wish on both sides to have co-operation with the EU and with our neighbours, like Cyprus. When you look at the values that are shared by the Israeli and EU societies it is almost impossible not to have a deepening of relations."
But the Israeli ambassador acknowledged there was a need to improve its image before the EU and vice-versa.
Suicide attacks condemned
The EU also condemns the intensification of suicide attacks by Palestinians.
This Brussels meeting, far from calming the policy dispute between the two sides, appears to have brought it to a head.
Israeli Foreign Minister Silvan Shalom said his country would ease its effective boycott of the EU's diplomatic representative in Israel, Marc Otte, imposed in protest against Brussels' determination to keep open its contacts with Palestinian leader Yasser Arafat.
But the EU says it has not been assured that Israel will re-open normal contacts with other senior EU figures, such as the foreign policy chief Javier Solana.