Pivotal role

Former Israeli ambassador to the EU, Oded Eran, believes that within six weeks the EU and Germany are likely to present a package of incentives in addition to the framework hammered out by US Secretary of State John Kerry.

"It's only six weeks until the nine-month point of peace negotiations and then comes the question of how the two sides will react and whether there will be a continuation to the process and obviously a package of incentives could help in this respect. The most important package is not to Israel, it's to the Palestinians - or to both to foster regional cooperation, which will be an incentive to everyone concerned," he told DW.

However, Tommy Steiner, Director of International Relations at the Iinstitute for Policy and Strategy at the Interdisciplinary Center in Herzliya, said any package of incentives offered by the EU won't be transformational. "I don't believe Israel, or Palestine will sign a framework agreement based on some sweeteners from the EU," he told DW.

Steiner said the EU had already granted Israel "special status" but no one could define what this meant and it had so far not provided any benefits. "If you called Lady Ashton and asked her what special status means, she would stutter, nobody has really defined this to Israel."

Eran said that in July 2013 Israel and the EU had a heated discussion on the issue of financial guidelines that ended with an agreement.

The agreement laid out that the EU would provide an unprecedented package of European political, economic and security support to both Palestine and Israel in the context of a final status agreement.

Support for both

"In the event of a final peace agreement, the EU will offer Israel and the future state of Palestine a special privileged partnership, including increased access to the European markets, closer cultural and scientific links, facilitation of trade and investment, as well as promotion of business-to-business relations and hence political dialogue and security cooperation will also be offered to both states," the statement read.

Eran said Israel and Palestine had been carelessly lumped together in the document. "We were put on the same bar - we are not - Israel is much more developed economically than the future Palestinian state. You could say that the future Palestinian state deserves much more help than Israel from European and other political and economic sources. Israel enjoys full market access and we don't have any major limitations on [the] entry of our goods," he said.

In addition to a package of incentives, Eran said the EU could also facilitate and administer trade, security and the holy sites once a final peace deal is signed between Israel and Palestine.

"Palestinians could decide that in the context of an agreement with Israel, they want a free-trade agreement, an economic agreement between Israel and Palestine," Eran said.

"Given the lack of trust that exists today, I think there will need to be a third party to monitor and make sure there's a free flow of goods, uninterrupted by non-tariff barriers. That Israeli officials don't stop the flow of goods from one side to the other, that has nothing to do with trade," he added.

Merkel's timely visit

Tommy Steiner believes German leaders visiting Israel this week could play a major role in influencing a declining opinion of Israel at the EU.

"Germany is a strong friend of Israel and will have something to say about the fact the EU has refused to endorse the US position of Israel as a Jewish state," he said.

Despite this Eran believes there has been a slump in Germany's view of Israeli policies. "The visit of Chancellor Merkel couldn't be more timely - the relations between Israel and the EU went to a very low ebb and it's something that should concern all of us, not only because Europe is a major trading partner but because Europe is the hinterland of Israel and it goes much beyond simple trade relations. I think that it's clear that the whole issue of Israel's relations with the Palestinians and the perception that Israeli is to be blamed for the absence of a solution is problem."

The blanket-effect of boycotts

Israeli officials say that for the time being the threat, real or perceived, of boycotts has had a limited impact on the Israeli economy.

"Some of those companies that have declared they are not going to deal with Israel don't have anything to do with Israel anyway," said Eran.

"I don't want to underestimate it - it can have a snowball effect. I don't blame the EU for the decision, or policy to boycott Israel, but the way the EU dealt with the issue added to the atmosphere that prevails in Europe. If you're an importer in Europe and you read in the papers that there is some kind of issue with Israeli products and you don't read the fine details - that the issue is not what's produced in Tel Aviv, but on the West Bank. Instead you get a vague impression you're better off not dealing with Israel. That is the danger, the blanket effect of a boycott," he added.