BRUSSELS, Belgium - European Union foreign ministers urged Israel and the Palestinians yesterday to make Jerusalem their shared capital, prompting a swift, angry reaction from Israel.

For their part, the Palestinians announced a boycott of products made in Israeli settlements in the West Bank. Palestinian Economics Minister Hassan Abu Libdeh said the government had already confiscated $1 million worth of products, including foods, cosmetics, and hardware, and said he hoped to remove all such goods from Palestinian store shelves next year.

Fully implementing the boycott will be a challenge, as the Palestinian economy relies heavily on Israeli manufacturers for many basic goods.

In Brussels, EU foreign ministers reiterated that the 27-member bloc would not recognize Israel's annexation of the eastern part of Jerusalem after it occupied it in the 1967 war. The ministers called for Israel to share Jerusalem as a capital with a future Palestinian state.

Although the EU has long opposed the annexation of East Jerusalem, the statement angered Israel and was sure to deepen Israel's sense that the Europeans favor Palestinian positions. President Obama has been trying, so far in vain, to nudge the sides toward renewed peace talks.

The EU ministerial statement dropped an earlier Swedish draft resolution that explicitly stated that East Jerusalem - the disputed part of the holy city - should be the capital of a Palestinian state. That resolution was dropped after Israel warned it would damage the bloc's ability to take part in any resumed peace talks as a negotiator.

Israeli Foreign Ministry spokesman Yigal Palmor said of the EU action, "We regret that the European Union chose to adopt the text." It "does not contribute" to promoting peace, he said, and ignores the Palestinians' refusal to resume peace talks, which broke down a year ago.

Palestinian Authority President Mahmoud Abbas has said he will not resume talks unless Israel halts all settlement construction.

Salam Fayyad, the Palestinian prime minister, welcomed the EU statement, saying it gave Palestinians "a better sense of hope and possibility about tomorrow."

The competing claims to East Jerusalem remain perhaps the most explosive issue in the Israeli-Palestinian conflict.

East Jerusalem is home to sensitive Jewish, Muslim, and Christian holy sites. The most contentious is the disputed hilltop compound known to Jews as the Temple Mount and to Muslims as the Noble Sanctuary. Temple Mount, home to the biblical Jewish Temples, is the holiest site in Judaism. It also is the site of the Al-Aqsa Mosque, the third-holiest site in Islam.

Palestinians have complained that Israel is trying to restrict their numbers in the eastern part of the city.

The EU ministers took "positive note" of Israel's recent decision to implement a temporary freeze on building new homes in West Bank settlements - a decision that angered the Palestinians by excluding East Jerusalem.

But they said that the settlements and a separation barrier Israel has built were on occupied land and that Israel's evictions and the demolition of Palestinian homes in East Jerusalem were illegal under international law. The resolution said such actions were "an obstacle to peace and threaten to make a two-state solution impossible."

The Palestinians have dismissed Israeli's temporary building freeze because it excludes East Jerusalem and 3,000 homes already being built in the West Bank.