The EU has rejected an Israeli proposal regarding guidelines that will prevent European states from dealing financially with Jewish settlements in the West Bank, an Israeli diplomat said Tuesday.

Prime Minister Benjamin Netanyahu held an emergency cabinet meeting Monday, just days ahead of an Israeli decision on whether to participate in an EU-funded scientific research project, for which Israel would have to recognise the European guidelines.

"The compromise solution we proposed ... was ignored. They made us wait two weeks to finally tell us, 'take it or leave it'," the Israeli diplomat told AFP on condition of anonymity.

"The cabinet ministers met yesterday but no decision has yet been taken and it's unlikely the EU will change its position," he said.

Israel objects to EU guidelines, published in July, which will ban funding for and financial dealing with settlements in the occupied West Bank and annexed east Jerusalem starting from January 2014.

The guidelines angered Israel because it would have to recognise in writing that the settlements -- which are illegal under international law -- are not part of the Jewish state in any future EU agreements.

Earlier this month a carefully-worded Israeli proposal suggested exempting Israel from making that distinction while "recognising" EU policy on settlements, according to newspaper Haaretz.

Under the Israeli proposal, Israel would also refuse to allow the explicit mention of the new EU guidelines on the settlements in any agreement on Horizon 2020, Haaretz said, citing Israeli officials.

The EU's rejection of the proposal on Monday focused particularly on that point, Israeli media reported.

The Israeli diplomat said Justice Minister Tzipi Livni was to call EU foreign policy chief Catherine Ashton later on Tuesday to try and persuade the Europeans to accept Israel's proposal.

Netanyahu's office had no comment.

An EU spokesman denied there had been a full rejection of Israel's proposal, however.

"Negotiations are ongoing ... in the context of how the guidelines will fit into the Horizon 2020 agreement," David Kriss said, of the multi-billion-dollar scientific research project.

If Israel joined the plan it would have to contribute 600 million euros to the project in return for access to the wider funding pot.

But after the EU's rejection, Israel would now have to accept the EU guidelines, as they are currently worded, to participate in Horizon 2020.

Some 30 members of the European Parliament urged the EU on November 13 it to rethink the guidelines, saying in a letter to Ashton that they should be reversed or softened.

The building of new settlements on occupied Palestinian land is a key sticking point in Middle East peace talks.