Tensions between Israel and the EU cooled down from boiling point on Tuesday, when the two parties reached a compromise on a bitter disagreement over settlements.

Israel had been keen to join the EU’s Horizon 2020 scheme, which was due bring a cash injection of £400m into Israeli R&D coffers. But Brussels insisted that Israel tacitly approve a policy that isolates settlements as a condition for joining the initiative.

New guidelines put in place in the summer stated that no EU money given to Israel should reach projects that operate in East Jerusalem, the West Bank and the Golan — areas in which, for the EU, Israeli activity implies “settlements”.

For weeks, Jerusalem refused to sign up to Horizon 2020, professing concern that doing so would be seen as approval for Brussels’s anti-settlement rules. Early this week, the crisis intensified, with Prime Minister Benjamin Netanyahu summoning ministers for urgent consultations on the issue.

Late on Tuesday, the crisis was solved. The EU agreed that Israel could add an appendix to the agreement outlining its objection to the strictures on settlements. This gave Israel the leeway it needed to sign up.

Foreign Ministry spokesman Paul Hirschson said that he was pleased that Israel will now join Horizon 2020, and that before its compromise, the EU had been trying to push Israel to define its borders. “What the Europeans were doing was effectively to dictate the terms of [a future Israel-Palestinian] agreement, which has nothing to do with Horizon 2020,” he said.