New labeling rules from the European Union could endanger the latest attempts at Middle East peace. Israel has reacted angrily to an EU instruction not to put “Made in Israel” on things produced in Jewish settlements in the West Bank – because the settlements are illegal.

By Geraint Vincent, NBC News

ARIEL, West Bank ? A new labeling policy for products coming from Israeli settlements has some business owners worried about their livelihood.

On the wall of his office, in one corner of his noisy factory floor, Yehuda Cohen looks at photographs from the last staff away day. He took his employees white-water rafting, on the River Jordan. There are smiling faces, eating and drinking, striking poses with life jackets and paddles.

?That?s Yossi,? says Cohen. ?And that?s his good friend Ahmed who works next to him on the line. It?s wonderful here. We work together, and we enjoy ourselves together.?

Yehuda has a workforce of 90 people, which is split down the middle — half Israeli, half Palestinian. The factory produces plastic bathroom accessories ? everything from toilet seats to laundry baskets. Last year, he exported goods to Europe worth around $4 million. It?s a good business, but one that he now fears is under threat from the European Union and its requirement that he put labels on his exports, so that his customers will know exactly where they are produced.

Yehuda?s factory is part of an industrial area built in an Israeli settlement in the West Bank. Settlements in the West Bank are considered illegal under international law, though Israel disputes this.

To address that issue, the European Union – one of Israel’s biggest markets – has issued new guidelines on labeling what it calls ?settlement products.?

But many Israeli factory owners, like Cohen, take issue with that designation and say it will essentially kill their business.

?Labeling will send a message: ?Don?t buy this product,?? Yehuda said. ?It will lead to a boycott of my products. That will just do damage. It will destroy my company, destroy jobs and all of the hope that we have created here. The politicians in Europe think they are helping the peace process ? well, they should come to my factory and see the reality. We are building peace from the bottom up.?

The EU announcement came in the same week that U.S. Secretary of State John Kerry announced that, after months of painstaking diplomacy, he had finally persuaded the Israelis and the Palestinians to return to the negotiating table, in search of a political settlement.

The EU move is intended to force the issue that has always confounded peace talks in the past: the issue of land. If the Kerry initiative is going to achieve a genuine breakthrough, then Israel is going to have to agree to give some land up.

Kerry has been careful not to criticize the Europeans? decision and some commentators inside Israel believe Brussels and Washington are in-step. The plan seems to be for the Americans to get the Israelis back to the table, and for the Europeans to make it clear that if they don?t make some concessions, then it?s going to hurt.

Not surprisingly, Israel?s statesmen have reacted angrily to the move, and not just because it might hurt the bottom line for Israeli companies operating inside the West Bank. They say the settlement product guidelines demonstrate the Europeans? shocking double standards.

“This is a mistake, it is counterproductive, it does not serve the cause of peace and it is not fair to single Israel out while the EU does not do this in any other place on the planet,” said Mark Regev, spokesman for Israeli Prime Minister Benjamin Netanyahu. “Ultimately, the issue of settlements will be resolved in peace talks with the Palestinians that we hope will start soon.” ?

Dr. Mustafa Barghouti, a member of the Palestinian leadership, hailed the guidelines as a ?good and important decision.?

For him, each laundry basket that comes off the end of Cohen?s production line represents a violation of international law.

?At last,? he said. ?European consumers are going to have the chance to choose between legal and illegal goods.?

The international community has been condemning Israel?s occupation of the West Bank for nearly half a century. In Ramallah, labeling settlement products feels like at least some action, after decades of words.

Back at the factory though, Yehuda introduced me to his assembly manager, a Palestinian named Rasheed Morrar.

?If the Europeans end up boycotting settlement products, then it will hurt us, as well as the Israelis,? Morrar said. ?The factories will have less work and so will we.?

Morrar added, “Only the Palestinian workers will get hurt [by product labeling], not the Israeli workers. The Israeli workers will stay at home and the government will pay their salaries ? but we will be out of a job.”

Walking out of the factory, through its busy delivery yard and out into the industrial park, it was strange to think that all of the structures were in contravention of international law. It might be an illegal development, but 3,000 Palestinians make their living there. ?

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