EU Commission chief says she will propose new measures targeting Israel

BRUSSELS (Reuters) -The European Commission will propose sanctioning extremist Israeli ministers and a partial suspension of the European Union's association agreement with Israel, targeting trade-related matters, European Commission President Ursula von der Leyen said on Wednesday.

"What is happening in Gaza has shaken the conscience of the world," von der Leyen said in a State of the Union speech to the European Parliament in Strasbourg, acknowledging divisions within Europe on how to move forward and pledging that the commission will do what it can on its own.

A suspension of the trade chapter of the agreement would withdraw trade preferences for Israeli products to enter the EU market and would require a qualified majority vote among EU governments, according to a July options paper prepared by the bloc's diplomatic service.

The EU is Israel's biggest trading partner, accounting for nearly a third of Israel's total international trade in goods last year.

A qualified majority is reached with the support of 15 out of 27 members representing 65% of the EU population, a difficult threshold to reach at a time when European capitals continue to have diverging views on how to approach Israel and Gaza.

Von der Leyen also said that the Commission will put its bilateral support for Israel on hold, without affecting work with Israeli civil society and Yad Vashem, Israel's main Holocaust memorial centre.

The Commission had previously proposed curbing Israeli access to its flagship research funding programme but failed to garner sufficient support from EU member countries for the move.

Diplomats say Germany's view on the proposal is key, and Germany has said it is so far unconvinced.

The Commission chief said the body will set up a Palestine Donor Group next month, including an instrument for Gaza reconstruction.

(Reporting by Lili Bayer and Andrew Gray; Editing by Benoit Van Overstraeten)