Can European and US Sanctions on Israeli Settlements Save the “Two-State Solution”?
Settlement Sanctions Will Not Draw the Map Britain, the Netherlands and Democrats Think They Will
By Dan Feferman and Uri Pilichowski
As Britain and Israel avert a diplomatic crisis over settlement sanctions, Western governments are expanding economic pressure on Israel in the name of preserving Palestinian statehood and a potential two-state solution. But are they distinguishing between settler violence, unauthorized outposts and established communities? Where is the corresponding pressure on Palestinian leaders to make peace possible? And did the Europeans bother to stop and ask if either the Israeli or Palestinians want such a solution to begin with?
A nearly 200-year-old British diplomatic presence in Jerusalem came close to being shut down this week, as London and Jerusalem clashed over Britain's new sanctions against Israeli settlements in the West Bank. Israel had ordered the closure of the British consulate in east Jerusalem, prompting a diplomatic confrontation that threatened to further damage relations between the two countries.
A last-minute compromise reached on October 8 prevented a complete shutdown. Under the arrangement, 20 British diplomats, including the consul general, would leave, while seven would remain at the newly designated UK Mission, Jerusalem. Britain maintains that the mission will continue its work with Palestinians, while Israel regards the change as a significant reduction in the consulate's status and functions. The British government confirmed the agreement, stressing that it would avoid reciprocal diplomatic action while discussions continued.
The confrontation illustrates a growing contradiction in Western diplomacy. Britain says its sanctions are intended to preserve the possibility of a two-state solution, yet their immediate consequence has been a diplomatic crisis with Israel rather than any meaningful progress toward negotiations.
And Britain is hardly alone. The Netherlands has begun enforcing a ban on settlement products, other European governments are considering similar restrictions, and Democratic lawmakers in Washington have introduced legislation targeting settlement construction and financing.
Behind this growing campaign lies a fundamental question: what exactly are Western governments trying to accomplish?
Some measures target individuals involved in violence against Palestinians. Others seek to prevent unauthorized settlement outposts or construction in strategically sensitive areas. Still others restrict ordinary commercial activity in established Israeli communities, including agricultural exports, manufacturing and housing development.
Stopping settler violence, preventing unauthorized land seizures and negotiating the future of established Israeli settlements are three different objectives requiring different understandings and responses. Yet Western sanctions increasingly blur these distinctions, raising questions about whether the penalties being imposed are suited to the political outcome their proponents claim to seek. Moreover, they don’t bother to ask the parties on the ground what they actually wish to achieve. Engagement and not sanctions are the way to go.
What are European governments and American Democrats actually doing on the settlements issue?
On September 22, the Netherlands began enforcing a ban on importing, purchasing and selling goods produced in Israeli settlements. The restrictions cover the West Bank, east Jerusalem and the Golan Heights, with deliberate violations potentially carrying prison sentences of up to six years. The restrictions extend beyond commercial imports. Dutch customs has clarified that settlement-produced goods cannot be brought into the Netherlands even as personal souvenirs or gifts. The prohibition does not distinguish between products manufactured in longstanding residential communities and those originating in recently established outposts.
Britain has announced an even broader approach. In September, Foreign Secretary Ed Miliband outlined plans to prohibit settlement imports and target companies involved in construction, infrastructure and financing. These proposals follow earlier British sanctions against individuals and financial networks linked to settler violence.
Meanwhile, twelve governments, including France, Canada, Spain, Ireland and Norway, have expressed support for further restrictions or announced that they are considering them. However, there is still no comprehensive EU-wide settlement trade ban, with member states divided over how far economic pressure on Israel should go.
The American dimension is particularly significant. On September 23, Senators Chris Coons, Elizabeth Warren, Ron Wyden and Ruben Gallego introduced legislation to sanction companies and individuals involved in construction in the E1 corridor, east of Jerusalem. A separate House proposal led by Joaquin Castro would impose broader restrictions on settlement expansion and imports.
Neither American proposal has become law, but their significance extends beyond their immediate legislative prospects. The involvement of relatively mainstream Democratic lawmakers suggests that support for economic pressure against Israeli settlement activity is expanding beyond the party's progressive wing.
The common objective is preserving a two-state solution. What remains unclear is how this patchwork of trade restrictions, financial sanctions and diplomatic penalties is supposed to produce the political conditions necessary for one.
Settlements, Outposts and Settler Violence: Understanding the Differences
The debate becomes more complicated because the term settlements encompasses several distinct realities.
According to Peace Now's August 2026 settlement data, the West Bank contains 146 officially established Israeli settlements and 390 outposts, including 163 conventional outposts and 237 agricultural or farm outposts. More than half a million Israelis live in the West Bank, excluding east Jerusalem which was annexed by Israel.
Established settlements are communities formally recognized under Israeli administrative and planning procedures. Many have existed for decades, with permanent housing, schools, businesses, industrial facilities and municipal infrastructure. Some sit close to the Green Line, within settlement blocs that previous peace negotiations envisioned remaining under Israeli sovereignty through mutually agreed land swaps. Others lie deeper inside the West Bank, where their expansion poses greater challenges for Palestinian territorial continuity. The vast majority of so-called “settlers” live in such settlements - around 80% to be sure.
Unauthorized outposts are generally smaller communities established without the formal approvals required under Israeli law. Their numbers have expanded. Peace Now documented 86 new outposts during 2025, including approximately 60 agricultural farms, alongside government decisions approving the establishment or recognition of 54 official settlements. Some of those decisions involved retroactively legalizing existing outposts or reclassifying settlement neighborhoods rather than creating entirely new communities.
Settler violence constitutes a third, distinct phenomenon, encompassing physical attacks, intimidation, arson, property destruction and other offenses committed against Palestinian civilians. The problem is serious although hardly as widespread as is made out to be in international media. According to the European Union's 2025 settlements report, UN monitors documented 1,828 settler attacks resulting in casualties or property damage during 2025, compared with 1,420 in 2024. Nine Palestinians were killed by settlers and 838 injured.
As a MidEastJournal analysis of settler violence explained, Israeli security assessments have identified a relatively small network of extremist activists responsible for a disproportionate share of serious incidents (around 100 individuals). That does not diminish the harm they cause or Israel's responsibility to stop them, but it challenges attempts to characterize hundreds of thousands of Israeli residents through the actions of a violent minority. The line between actual violent activities by settler activists and what is characterized vaguely as “settler violence” is sometimes grey, but the actual number of violent attacks by rogue settlers is a fraction of what is reported by international organizations who often use too-broad a brush to describe the problem at hand.
At the same time, the connection between certain outposts and violence cannot be ignored. In August, confrontations around the Palestinian village of Qusra involved unauthorized structures, intimidation of residents and attacks by Israeli extremists. As MidEastJournal documented in its coverage of the Qusra incidents, Israeli authorities eventually intervened, but the response raised questions about slow or selective enforcement. Even U.S. Ambassador Mike Huckabee, a prominent supporter of Israeli settlement communities, condemned the extremists involved.
These distinctions operate within a broader legal dispute. Most of the international community, including the International Court of Justice, regards Israeli settlements in occupied territory as unlawful under international law, regardless of whether they are authorized under Israeli law. Israel disputes important aspects of this interpretation and emphasizes historical claims, security requirements and unresolved sovereignty questions. These are also mostly settlements that lie adjacent to the green line and would remain in Israel under any negotiation scenario.
But international legal status, unauthorized construction and individual criminal responsibility are different questions. Conflating them risks turning measures intended to address specific wrongdoing into a broader campaign against civilian communities.
Why E1 Has Become the Center of the Dispute
The E1 development area between Jerusalem and Ma'ale Adumim illustrates why Western governments are increasingly concerned about Israeli settlement policy.
Israel has advanced plans for approximately 3,000 or more housing units in the area. Critics argue that construction would significantly undermine Palestinian territorial continuity between the northern and southern West Bank, while complicating the possibility of east Jerusalem serving as the capital of a future Palestinian state.
Israeli proponents emphasize Jerusalem's security, territorial connectivity and the development of existing communities. Opponents regard the project as an attempt to establish irreversible facts on the ground. This explains why American Democratic lawmakers have singled out E1 for proposed sanctions and why European governments have made the project a central part of their criticism.
Yet E1 is ultimately a dispute over borders, sovereignty and the future of Jerusalem. It is not equivalent to an assault on Palestinian civilians or an unauthorized attempt to seize private property. Its resolution requires decisions about territory and security that no customs regulation can provide. It is a diplomatic issue, not a law enforcement one.
Why Sanctions Are Unlikely to Achieve Their Goal
Supporters of sanctions argue that raising the economic cost of settlement expansion will discourage construction and preserve the territorial basis of a Palestinian state. Their concern is not without foundation: continued expansion and the proliferation of outposts have complicated the geographical and political prospects for a negotiated agreement.
The difficulty is that the record offers little evidence that international pressure has meaningfully reversed Israeli settlement policy. Britain and other European governments have spent years criticizing expansion, sanctioning individuals and discouraging companies from settlement-related business. Several Western countries recognized Palestinian statehood in 2025. Nevertheless, settlement planning and outpost expansion continued.
Broader sanctions may impose additional economic and reputational costs, but they could also harm Palestinians employed in Israeli agricultural and industrial businesses, complicate ordinary commercial relationships and provoke diplomatic retaliation. The British consulate confrontation is a case in point. Rather than bringing Israel and the Palestinians closer to negotiations, the sanctions generated a diplomatic crisis that threatened Britain's own ability to engage with Palestinian institutions.
More fundamentally, the sanctions strategy assumes that increasing the cost of settlements can preserve a two-state solution. But the failure to achieve Israeli-Palestinian peace cannot be explained by settlements alone or perhaps not at all. After all, the October 7 attacks came out of a Gaza that had been free of all settlements for nearly 20 years. Jerusalem, refugees, borders, security arrangements, Palestinian governance, mutual recognition and the future of armed organizations remain unresolved. Even a comprehensive settlement freeze would not automatically produce agreement on these issues.
What About Palestinian Responsibility for Promoting a Diplomatic Solution?
There is another tension in the emerging Western sanctions strategy. If the objective is preserving the possibility of a Palestinian state alongside Israel, why is so much diplomatic attention directed toward penalizing Israeli settlement activity, while the Palestinian leadership faces almost no visible pressure to create the political conditions for peace?
Palestinian statehood requires more than territorial continuity. It requires leadership willing and able to negotiate, reject violence, prepare its population for coexistence and accept the legitimacy of a neighboring Jewish state. Yet Western diplomacy often treats settlement construction as an urgent obstacle demanding economic consequences, while Palestinian incitement, rejectionism and institutional shortcomings are addressed primarily through commitments to future reform.
The Palestinian Authority's longstanding payments to imprisoned Palestinians and families of those killed in the conflict illustrate the problem. Critics argue that payments linked to imprisonment or involvement in attacks create incentives that reward violence. In 2025, President Mahmoud Abbas announced the abolition of the previous prisoner-payment system and its replacement with a needs-based welfare framework, but implementation remains a matter of dispute. On October 2, 2026, the British government acknowledged that an audit of the reforms had been completed but was awaiting full publication, meaning the changes had not yet been publicly verified.
Educational incitement presents another challenge. The European Parliament has called for Palestinian educational materials to eliminate antisemitism, glorification of violence and rejection of peaceful conflict resolution, while acknowledging progress in some curriculum revisions. These reforms should not be treated as secondary technical matters. Education shapes whether future generations view coexistence as a legitimate national objective or regard continued confrontation as inevitable.
There is also the question of normalization. The Palestinian leadership has historically opposed forms of Arab normalization with Israel that it believes bypass Palestinian national rights. Yet regional cooperation, economic engagement and people-to-people relationships can help create conditions for eventual compromise. Rather than discouraging normalization, Palestinian institutions should be encouraged to participate in regional initiatives and support Israelis and Palestinians working together toward peaceful coexistence.
None of this absolves Israel of responsibility for settler violence, unauthorized land seizures (also debatable how much Israel is accused of is an actual unlawful seizure) or policies that complicate territorial compromise. Nor is it accurate to suggest that Western governments have placed no demands on the Palestinians. Britain and the European Union have attached conditions to assistance and sought commitments on governance, educational reform and prisoner payments.
The question is whether those demands are being enforced with the same political urgency, verification and willingness to impose consequences as restrictions on Israeli settlement activity.
If European governments believe economic leverage can change Israeli behavior, they should also explain how their substantial financial and diplomatic relationships with the Palestinian Authority are being used to secure credible negotiations, independently verified reforms, rejection of violence and normalization.
A diplomatic solution cannot be sustained without changes on both sides. It requires both national movements to prepare their populations for compromise, acknowledge the other's legitimate national aspirations and demonstrate that a negotiated settlement offers a better future than continued conflict.
Diplomacy Must Reflect the Changes Since the Last Peace Negotiations
Much of Western diplomacy still relies on assumptions developed during the Oslo process and subsequent negotiations of the 2000s. Yet the political and security realities have changed profoundly.
Israelis and Palestinians failed to reach agreements during the negotiations of 2000–2001 and again in 2008. Yasser Arafat famously walked away from Ehud Barak’s comprehensive offer in 2001. Prime Minister Ehud Olmert proposed a far-reaching territorial compromise in 2008, including withdrawal from most of the West Bank and mutually agreed land swaps. Palestinian Authority President Mahmoud Abbas did not accept the proposal once again.
Since then, Hamas's takeover of Gaza, the division of Palestinian leadership, governance failures within the Palestinian Authority and repeated rounds of conflict have further undermined confidence in the political process. And we haven’t even reached the trauma of October 7.
Israeli society has also changed. The experience of the Second Intifada, Israel's 2005 withdrawal from Gaza and subsequent wars with Hamas have completely altered public attitudes toward the possibility of territorial concessions and Palestinian statehood.
The Hamas-led October 7, 2023 attacks intensified those security concerns dramatically. For many Israelis, the possibility that territorial withdrawal could produce another hostile armed enclave has become unimaginable. Palestinian society will require a massive deradicalization and overhaul for Israelis to consider making such concessions again.
A diplomatic framework that ignores these realities cannot simply recreate the negotiations of twenty years ago and expect a different result. The political landscape has changed, the security environment has deteriorated, and mutual confidence has been severely damaged. Any serious attempt to revive negotiations must begin by acknowledging those transformations rather than treating them as temporary obstacles to an otherwise familiar peace process.
What a More Effective Western Strategy Would Look Like
If preserving a diplomatic solution is the objective, Western governments need a strategy that addresses the underlying obstacles to peace rather than relying primarily on economic punishment. It must also differentiate between the behaviors it seeks to address and policy tools - unchecked lawlessness is one thing, future borders in a potential diplomatic deal is another. And yet, none of this stops to ask Israelis and Palestinians alike if a two-state solution is something they even seek (or ever actually sought - as we learned from the Palestinians’ rejection of such offers).
First, settler violence must be addressed through direct accountability. Israeli authorities must investigate and prosecute attacks against Palestinian civilians, enforce the law against violent extremists and confront unauthorized land seizures. Targeted action against identifiable perpetrators is more closely connected to these offenses than broad restrictions on ordinary economic activity.
Second, Palestinian institutional and educational reform must become a diplomatic priority. A future Palestinian state requires credible governance, accountable leadership, functioning institutions and the capacity to maintain security. Reforms to prisoner-payment systems must be independently verified, while educational reform should promote coexistence, reject incitement and the glorification of violence, and recognize the legitimate national rights of both peoples.
Third, deradicalization must become part of the peace process. The aftermath of October 7 and the Gaza war has demonstrated how deeply fear, hostility and rejectionism have become embedded in both societies. Sustainable peace requires more than agreements between political leaders; it requires rebuilding public confidence that coexistence is possible.
Fourth, Israeli security concerns require enforceable guarantees. Demilitarization, border monitoring, counterterrorism cooperation and mechanisms to prevent the emergence of another armed enclave must be central to any future agreement, rather than left for subsequent negotiations. The demilitarization and disbandment of Hamas and other armed groups and the deradicalization of society go hand-in-hand and are non-negotiable.
Finally, Western governments should focus on bringing both parties back toward meaningful negotiations, with regional Arab states playing a more substantial role. The Abraham Accords have demonstrated that regional cooperation can generate economic, strategic and political incentives for peace even amid unresolved disputes. As a MidEastJournal analysis marking six years of the Abraham Accords argued, normalization has created relationships extending beyond traditional diplomatic agreements, offering a potential foundation for broader regional cooperation.
Such a framework could link Palestinian institutional reform, Hamas’ disarmament and economic development with Israeli security guarantees, regional investment and an eventual negotiated territorial settlement. It should also encourage Palestinian participation in regional normalization rather than treating engagement with Israel as a concession that can only follow a final-status agreement.
Sanctions Cannot Replace a Peace Process
The emerging Western sanctions campaign begins with a serious concern: settlement expansion, unauthorized outposts and violence in the West Bank are complicating the prospects for a negotiated diplomatic solution.
But increasingly broad economic restrictions risk applying similar penalties to violent extremists, so-called “unauthorized land seizures” (which are rare), established civilian communities and contested territorial development. They may express international opposition to Israeli policies without changing the political and security conditions that have prevented peace.
There is also a fundamental question of consistency. If Western governments are prepared to use economic pressure to influence Israel's territorial policies, they should be equally prepared to demand measurable Palestinian progress on governance, educational reform, ending violence-linked payments, rejecting incitement and encouraging normalization.
The Palestinians cannot achieve sustainable statehood without confronting their own political and institutional obstacles, just as Israel cannot expect the international community to ignore developments that threaten Palestinian territorial continuity. A viable peace requires changing the incentives and expectations on both sides.
No customs regulation can reconcile Israeli and Palestinian national claims, no financial penalty can substitute for Palestinian institutional reform, and no import ban can provide Israelis with credible security assurances about a future Palestinian state.
If Western governments genuinely want to preserve and advance a diplomatic solution, their priority should be rebuilding the political, institutional and security conditions that could eventually make negotiations possible. That means holding perpetrators of violence accountable while addressing the failures of Palestinian governance, the consequences of radicalization and the legitimate national and security aspirations of both peoples.
Sanctions may impose costs, but they cannot draw the borders of a future peace. That requires diplomacy adapted to today's realities, credible commitments from both sides and a serious effort to address the obstacles that have prevented Israelis and Palestinians from reaching an agreement for more than two decades.
Dan Feferman is the co-editor of MiddleEast24 and the editor of MidEast.Journal. He is a former IDF strategy and intelligence officer, think-tank fellow and writer and research on Middle East and international affairs.
Uri Pilichowski is an educator, author, and commentator based in Israel. He writes and speaks frequently on Israeli society, Zionism, Jewish identity, and the Israeli-Palestinian conflict. He lives in a settlement in Judea and Samaria.