Israeli Prime Minister Benjamin Netanyahu on Monday scoffed at international criticism of his plans to build settler housing on occupied land east of Jerusalem.
Speaking to foreign journalists, he compared the E1 plan to build between largely Arab east Jerusalem and the West Bank settlement of Maaleh Adumin, to the accepted goal of a Palestinian state embracing the West Bank and the Gaza Strip.
"I don't understand how people say that a Palestinian state cannot exist if Maalah Adumim is connected to Jerusalem,' he said.
"These are the same people who say that you'll have a Palestinian state between Gaza and the West Bank, and they're divided by 60-70 kilometres (40-45 miles)," he said.
"That's fine, that doesn't preclude a Palestinian state in their minds but the fact that Maaleh Adumim can be connected to Jerusalem by a corridor of 2-3 kilometres, (they say) that somehow prevents a Palestinian state. That's not true. It's simply false."
The EU said on Monday it is "deeply dismayed" by latest settlement plans put forward by Netanyahu after the Palestinians won an historic upgrade of their diplomatic status at the United Nations.
"The European Union is deeply dismayed by and strongly opposes Israeli plans to expand settlements in the West Bank, including in east Jerusalem, and in particular plans to develop the E1 area," the 27 EU foreign ministers said in a statement.
The E1 plan "if implemented, would seriously undermine the prospects of a negotiated resolution of the conflict" as it would question the viability of the two-state settlement central to the peace process.
An Israeli foreign ministry statement said that the EU position was "one-sided".
"Facts and history both prove that Jewish settlement never constituted an obstacle to peace," it said.
"The root cause of the absence of a peace accord is the Palestinian refusal to engage in direct negotiations and their unwillingness to recognise Israel as the nation-state of the Jewish people," it added.
"This one-sided position taken by the EU rewards rejectionism."
Direct peace talks which began in September 2010 collapsed quickly in a dispute over settlements, with the Palestinians calling for a construction freeze and Israel arguing for a return to talks without such preconditions.
Before the start of talks in 2010, Israel observed a 10-month freeze on new West Bank construction but has refused repeated requests to renew it, dismissing them as an unacceptable "precondition" for talks.