(JTA) — A leaked European Union report warns that sanctions may be imposed on Israel for its increased settlement in the eastern part of Jerusalem – a city that the EU warns is more divided than any time since 1967.

The report, as described by the Guardian, blames Israeli settlement in East Jerusalem for a “vicious cycle of violence … increasingly threatening the viability of the two-state solution.”

The timing of this report comes just days after the re-election of Israeli Prime Minister Benjamin Netanyahu, who in the lead-up to the election stated in an interview that as prime minister he would not allow the formation of a Palestinian state.

He was also criticized for urging his supporters to vote by saying that “droves” of Israeli Arabs were voting.

Throughout his campaign, Netanyahu repeatedly vowed to continue building settlements in East Jerusalem.

In the aftermath of the election, the Obama administration has indicated that it may change its strategy toward achieving a two-state solution now that Netanyahu has been reelected.

Among the E.U. report’s recommendations are restrictions on “known violent settlers and those calling for acts of violence as regards immigration regulations in EU member states.”

The report also discourages European businesses from working with new Israeli settlements.