Jerusalem is waging a diplomatic campaign to keep the EU from issuing such an endorsement, but diplomats close to the EU deliberations believe it is virtually inevitable.
EU foreign ministers are scheduled to meet on December 7 for a two-day meeting in Brussels on the peace process, after which a statement outlining the body's Mideast policy is expected.
The Swedish draft represents the first official EU articulation of a solution for one of the core issues of the final-status arrangement between Israel and the Palestinians.
The document expressed the EU's concern over the stalemate in the peace process and calls for the immediate renewal of negotiations between Israel and the Palestinian Authority in accordance with a prescribed timetable. The goal, it states, is "an independent, democratic, contiguous and viable state of Palestine, comprising the West Bank and Gaza and with East Jerusalem as its capital."
The draft refers directly to the situation in East Jerusalem, calling on "all parties to refrain from provocative actions" and stating the EU Council "has never recognized the annexation of East Jerusalem. If there is to be a genuine peace, a way must be found to resolve the status of Jerusalem as capital of two states. The Council calls for the reopening of Palestinian institutions in Jerusalem in accordance with the road map. It also calls on the Israeli government to cease all discriminatory treatment of Palestinians in East Jerusalem."
The document deals only briefly with Israel's announcement of a 10-month moratorium on construction in settlements across the West Bank: "The Council takes note of the recent decision of the government of Israel on a partial and temporary permanent freeze and expresses the hope that it will become a step towards resuming meaningful negotiations." Israel's removal of checkpoints also receives only cursory mention: "Many checkpoints and roadblocks remain in place to protect settlements."
On the issue of borders, the document states that the EU will not accept any changes made by Israel to the 1967 borders unless they have PA approval. The EU, it says, welcomes PA Prime Minister Salam Fayyad's proposal of a unilateral declaration of statehood and would "be able, at the appropriate time, to recognize a Palestinian state."
Israeli diplomats have been following the Swedish initiative for several weeks. Israel's Brussels-based ambassador to the EU, Ran Kuriel, sent several messages to Jerusalem last week accusing Sweden of leading the union on a "collision course" with Israel. Kuriel wrote that Britain and France support the Swedish position, while Germany, Spain and Italy are disinclined to side with Israel on the matter.
Senior Foreign Ministry officials said the belief is widespread across the foreign policy echelon that Sweden is advancing an explicitly "anti-Israel" line, rendering Europe "irrelevant" to the peace process.
European diplomats privy to the negotiations said that although changes favorable to Israel had been made to the draft, there is virtually no chance of preventing the EU from calling for the division of Jerusalem. They said they believe the EU statement will help Palestinians return to negotiations with Israel, as it gives them guarantees of a Palestinian capital in Jerusalem even though Israel has not frozen construction there.