LUXEMBOURG- European Union foreign ministers welcomed Monday the Israeli prime minister's conditional endorsement of a future Palestinian state, but said it was not enough to raise EU-Israel ties to a higher level.

The ministers, who were due to meet Israel's foreign minister later Monday, questioned conditions cited by Prime Minister Benjamin Netanyahu for backing a Palestinian state and also his defense of Jewish settlements on occupied land.

Netanyahu has refused to back a state for Palestinians since taking office in March, but said Sunday he would endorse it if Israel received guarantees the new nation would have no army and Palestinians recognized Israel as a Jewish state.

That's good but it's only a first step, Swedish Foreign Minister Carl Bildt, whose country take over the EU presidency in July, said before the talks in Luxembourg.

French Foreign Minister Bernard Kouchner said it was not sufficient.

Nothing was said on the settlements ... but this stopping of the settlements is essential, said Kouchner, who in an earlier statement rejected any pre-conditions to peace negotiations.

The EU and Israel have agreed in principle to upgrade an association agreement defining their ties, a move that would bring trade benefits for both sides.

But the 27-nation bloc has put the upgrade on ice and says it wants a firm commitment from Israel to seek a so-called two-state peace accord with the Palestinians.

We must say quite clearly today there can only be talk of an upgrade when the peace process is on its way, and for that we need a few steps more, said Luxembourg Foreign Minister Jean Asselborn.

Asked if Netanyahu's move was sufficient for the EU to upgrade ties with Israel, Finnish Foreign Minister Alexander Stubb said: No.

The EU ministers were due to meet Israeli Foreign Minister Avigdor Lieberman for talks in Luxembourg Monday evening.

U.S. President Barack Obama called Netanyahu's shift on Palestinian statehood an important step forward. But aides to Palestinian President Mahmoud Abbas said the speech sabotaged negotiations by restating Israel's refusal to share the city of Jerusalem or accept Palestinian refugees.

(Additional reporting by Julien Toyer and Ilona Wissenbach; Writing by David Brunnstrom; Editing by Richard Balmforth)

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