The European Union is creating a detailed new plan sponsored by Britain and France to re-start Israeli-Palestinian peace talks, which will include a demand to freeze all construction in the settlements, Yedioth Aharanot reported on Sunday.

The EU plan aims to bring about a Palestinian state on 1967 borders with East Jerusalem as its capital, according to the Israeli newspaper.

Diplomatic sources in Jerusalem told Yediot that the plan, which is also backed by Germany, could be adopted by the entire EU. They said it included: "Clear timetables for the completion of the negotiations on all the core issues in the course of 2013."

The newspaper quoted a high-ranking Israeli official as saying: "The Europeans don't have the capability to force an agreement on us, but they definitely may embarrass us.

"It is reasonable to assume that the Palestinians will accept a document of that sort, but Israel will be hard put to do so. That's going to paint us into a corner," the source said.

It is expected that the plan will be presented in March after the Israeli elections.