BRUSSELS (AFP) - Europe on Monday reaffirmed its readiness to recognise a Palestinian state at an appropriate time, stopping short of outright recognition despite mounting pressure to break the Middle East impasse. Pressure has built on the European Union to flex muscle after Israel refused to extend a moratorium on settlements, with 26 former European leaders last week demanding sanctions, and Argentina and Uruguay joining Brazil in recognising an independent Palestinian state. Palestinian president Mahmud Abbas on Monday urged the blocs foreign policy chief Catherine Ashton in a phone conversation to take a step towards recognition of the state of Palestine based on the 1967 borders, chief Palestinian negotiator Saeb Erakat told AFP. And in Israeli media, even its closest EU ally Germany was reported Monday to be urging the recognition of a Palestinian state a report later described as simply false by Berlin. There is growing frustration with Israel after its refusal to commit to a new settlements freeze, a European diplomat told AFP as negotiators quibbled and clashed over a joint EU stand. But after long and prickly negotiations, foreign ministers meeting in Brussels adopted a statement that falls short of ultimatums and breaks little new ground. Going into the talks, Cyprus Foreign Minister Markos Kyprianou said the recognition of a Palestinian state had always been on the table. But at this stage its too early. German Foreign Minister Guido Westerwelle said it was vital to avoid action that could compromise Israeli-Palestinian talks, including unilateral moves. The EU statement expresses regret at Israels rejection of a new freeze, describing settlements as illegal and an obstacle to peace. It underlines EU support for a negotiated solution between the two sides within the 12 months set by the Quartet of international mediators. It also welcomes a recent World Bank assessment that the Palestinian Authority is well positioned for the establishment of a State at any point in the near future and goes on to say that the EU reiterates its readiness, when appropriate, to recognise a Palestinian state. The EU will not recognise changes to pre-1967 borders, including with regard to Jerusalem, other than agreed by the parties. This could include territorial swaps, it says, without further comment in what a diplomat said was the first such reference by the EU. It also demands that a way be found to resolve the status of Jerusalem as the future capital of two states and calls for a just solution to the refugee problem. Turning to Israels blockade of Gaza, it calls for massive and immediate efforts to help rebuild and revive the economy of the territory run by the radical Hamas movement. We are faced with a completely new ball game now that the negotiations in essence have slowed down because of the continuation of building settlements, said Finlands Foreign Minister Alexander Stubb. But asked whether this should mean the recognition of a Palestinian state, he said: I would not like to go there yet. I think the most important thing is to keep the peace process going. In the letter to Ashton released last week, 26 former EU leaders, including her predecessor Javier Solana, urged her to threaten Israel with sanctions for failing to respect the freeze. They also urged an April 2011 ultimatum for Israel to fall in line or see peace efforts referred back to the international community. But diplomatic sources said EU member states remained divided between moderates and those who wanted to stiffen pressure on Israel, including Germany.