The European Union, turning aside Palestinian objections, has announced upgraded relations with Israel in the form of a range of steps involving commerce, the economy, and academic ties as well as improvements in the diplomatic dialogue between the sides.

The decision was taken unanimously on Monday by the EU's 27 member nations, following an intense diplomatic effort by Israel.

The upgrade in relations had been in doubt prior to the decision, amid moves to make approval conditional on a freeze on Israeli settlement activity and on progress in the Israeli-Palestinian peace process. Palestinian Authority Prime Minister Salam Fayyad enraged Israeli officials when he asked the EU not to upgrade ties with Israel unless Israel ceased construction of settlements and the West Bank separation barrier.

The PA has charged that Israel delayed and reduced payments of tex revenues it collects for the Authority in order to "punish" Fayyad.

In the wake of diplomatic efforts by senior Foreign Ministry officials, the EU made do with a call for movement in Israeli-Palestinian talks, and without conditioning the upgrade on such progress.

Accordingly, Foreign Minister Tzipi Livni and EU counterparts meeting in Luxembourg on Monday agreed to set up a working group to discuss the outlines of upgraded ties and to present their conclusions by year's end.

The upgrade will be carried out in a number of spheres. The diplomatic dialogue between the Israeli government and senior officials of EU institutions, by means of annual high-level meetings.

In the economic sphere, Israel will join European agencies and working groups with the aim of bringing the Israeli economy closer to European standards, and to help Israeli companies more easily contend with the European commercial market, particularly in the fields of high-tech and aviation.

Upgraded ties may also lead to recognition by European academic institutions of degrees awarded by Israeli universities and colleges, a step which would allow Israeli students to study for advanced degrees in European universities and other academic institutions.

In addition, the process would allow grants worth tens of millions of euros to be awarded Israeli scientists and researchers.