Israel has warned it will retaliate against Britain if the UK imposes sanctions over plans to expand illegal settlements in the West Bank, as Foreign Secretary Ed Miliband confirmed the Government intends to "reset" its Israel policy within weeks. The dispute centres on Israel's fast-tracked tenders for the E1 settlement, which the UK considers illegal under international law because it would sever the West Bank from East Jerusalem, potentially undermining prospects for a two-state solution.

Israeli foreign minister Gideon Saar told a Hebrew-language news site that "if Britain acts against Israel, Israel will act against Britain", warning any UK sanctions would be "a big mistake". In the Commons, Prime Minister Andy Burnham said Israeli decisions on E1, particularly if fast-tracked ahead of October's Israeli general election, could "imperil, if not end" the two-state solution, while Foreign Office minister Stephen Doughty indicated the policy reset could include a ban on trade in goods from illegal settlements and further sanctions related to violence in Gaza. Miliband told MPs he would set out "a comprehensive set of measures in the coming weeks" and would not "acquiesce in the destruction of the two-state solution".