• Confidential report attacks 'illegal' house demolitions
• Government accused of damaging peace prospects

A confidential EU report accuses the Israeli government of using settlement expansion, house demolitions, discriminatory housing policies and the West Bank barrier as a way of "actively pursuing the illegal annexation" of East Jerusalem.

The document says Israel has accelerated its plans for East Jerusalem, and is undermining the Palestinian Authority's credibility and weakening support for peace talks. "Israel's actions in and around Jerusalem constitute one of the most acute challenges to Israeli-Palestinian peace-making," says the document, EU Heads of Mission Report on East Jerusalem.

The report, obtained by the Guardian, is dated 15 December 2008. It acknowledges Israel's …