Why is Israel’s E1 settlement plan in West Bank so controversial?

The UK government announced on Tuesday plans for an import ban on goods from illegal settlements in the occupied West Bank and sanctions for companies that “finance or facilitate” the construction, infrastructure and marketing of illegal settlements.

The announcement by British foreign secretary Ed Miliband was co-ordinated with a joint statement from 20 other countries – including Ireland – which said the new E1 settlement project will “undermine the prospect of the two-state solution by driving a wedge through the West Bank and harming the territorial contiguity of the Palestinian territories.”

What is the E1 settlement?

Israel’s housing ministry recently issued a notice inviting bids for the construction of more than 1,200 housing units in E1 near Jerusalem, which aims to create a continuous bloc of Jewish settlements from East Jerusalem to the West Bank.

The settlement would effectively divide the West Bank into north and south, making a contiguous Palestinian state virtually impossible, while splitting East Jerusalem – viewed as the capital of such a state – from the rest of the territory.

The project is designed to “bury the idea of a Palestinian state”, the far-right Israeli minister Bezalel Smotrich has said.

Why is going after E1 settlement financing a big deal?

The trade in goods grown or produced in settlements is a relatively small part of Israel’s export economy, although its exact scale is obscured by a lack of Israeli statistics.

The Israeli settler population in occupied Palestine has almost tripled over the past three decades, from 270,000 in 1993 to 770,000 today.

That expansion is underpinned by large government subsidies. A trade ban alone would be unlikely to have much impact on the viability of construction that is a government priority, or on the broader Israeli economy.

However, plans to place sanctions on any company that finances or facilitates settlement expansion could force Israel’s main banks and insurance companies to choose between their business interests in the UK and those in occupied Palestine.

What is the status of Israeli settlements and the settler economy?

Britain is the latest country to recognise Israel’s occupation of Palestine as unlawful, in line with a landmark 2024 ruling from the UN’s International Court of Justice (ICJ).

The ICJ ordered Israel to end its occupation “as rapidly as possible” and make full reparations for its “internationally wrongful acts”.

Supporters of these measures say they redraw the line between Israel proper and illegally occupied territory, and are a much-needed response to Israeli government policies that are undermining the country.

The former Israeli prime minister Ehud Olmert, whom Miliband quoted in his speech on Tuesday, said: “The British government decision became unavoidable as a result of a continuous effort of ethnic cleansing perpetrated by a large group of Jewish terrorists in the West Bank … Sanctions are directed against the terrorists, not against Israel, and as such they are unavoidable.”